Saturday, June 23, 2012


ICICI bank has demonstrated prowess in improving ALM, asset quality & funding mix, conserving capital along with containing overall risk.

 ICICI bank has reported improvement in its ALM with increase in share of deposits in <1 Yr bucket from 44.1% in FY11 to 54.5% in FY12, which bodes well for the bank in the falling interest rate environment.

 Even though system was facing migration of CASA deposits to term deposits during FY12, its CASA share remained stable at 43.5% at the end of FY12, which is key to the likely improvement in its future NIM, in our view. We are modeling NIM to come at 2.85% during FY13 as compared to 2.73% achieved during FY12.

 Asset quality continued to improve - net NPA declined to 0.62% at the end of Q4FY12. This has come along with decline in credit costs (73bps in FY12 as compared to 126bps in FY11 and 201 bps in FY10) and improvement in coverage ratio (PCR has reached to 80.4% at the end of FY12).

 With easing credit costs, expanding CASA and curtailed operating expenses, RoA has improved to 1.5% in FY12 from 1.35% in FY11. We are factoring lower credit costs (66bps in FY13 as compared to 73bps in FY12 and 126bps in FY11) due to decline in delinquencies in last couple of quarters.

 We are modeling earnings to grow 18.5% CAGR during FY13-14E and expect bank to focus on liability franchise (CASA mix) and profitability (RoE is likely to improve further with increase in leverage in next 2-3 years); loan growth target would track the deposit mobilization with CASA share being maintained at 40%+ levels. We reiterate BUY on the stock with the TP of Rs.1108 (Rs.1103 earlier) using SOTP method, where the value of its standalone business comes to Rs.886 (1.6x FY13E ABV) and the value of subsidiaries at Rs.223 (holding company discount: 20% to the fair value of its subsidiaries at Rs.278).

Improvement in the ALM; bodes well for the bank in the falling interest rate environment ICICI bank has reported improvement in deposit maturity profile - its share in <1 Yr bucket has increased from 44.1% in FY11 to 54.5% in FY12. In falling interest rate environment, a rising share of shorter maturity deposits implies a larger amount of deposits would come for re-pricing at lower rates, thus helping the bank in containing its cost of funds.