Monday, April 30, 2012

>ICICI BANK: Q4FY12 Results update

Above estimates on strong core performance

ICICI Bank’s Q4FY12 core performance came in stronger than expected (Rs19bn, up 31% YoY) led by positive NIM surprise and lower provisions. Asset quality remains comfortable with 1) GNPA stable QoQ 2) slippages under control (~1%) 3) Credit costs under control at 75 bps and PCR healthy at ~80%. While the restructured portfolio has increased sharply by ~39% QoQ (with negligible pipeline), it still remains comfortable at 1.7% of advances. We maintain our fair value estimate and recommend Buy and believe that ICICI Bank is one of the safest bets in the current asset quality cycle that also offers decent upside.

 NIM expands 30bps QoQ, Loan growth @ 17%: NII grew by a strong 23.7% yoy to Rs31.1bn led by a credit growth (17.3% yoy) and 30 bps QoQ expansion in reported NIM. The NIM expansion is can be traced to 1) higher loan yields due to late upwards re-pricing of loans 2) lower securitisation losses and 3) favourable loan mix. While the management guided for a 10-15 bps expansion in NIM for FY2013, we believe that NIM could surprise on the upside based on 1) lower share of low-yielding international book 2) benefit of lower losses on security receipts and 3) higher share of retail loans.

 Asset quality stable, restructuring on rise but comfortable: Asset quality matrices continue to remain healthy with 1) GNPA improving by ~20 bps QoQ 2) PCR expanding to 80.4% 3) Slippage rate contained at ~1.0% and 4) credit costs contained at 75 bps. Meanwhile, the restructured portfolio has increased sharply by ~39% QoQ (with negligible pipeline), though still remains comfortable at 1.7% of advances.

 Loan growth healthy but challenges remain: Overseas loan growth seems to have benefitted from rupee depreciation (up 26% YoY), which along with strong growth in SME and domestic corporate book drove the 17.3% advances growth. Meanwhile, retail book growth remained lacklustre (8% YoY). Given the anticipated weakness in overall domestic loan demand coupled with significant run-offs in overseas book, maintaining loan growth is likely to be a challenge for the bank during FY13.

 Weak core fee income performance: Non-interest income grew by strong 36% YoY during the quarter led by sharp jump in treasury gains while fee income witnessed a contraction of ~3.5% YoY (on continued weakness in third party distribution and corporate fee income). For FY13, management guided for higher growth in core fee income.

 Maintain Buy: Not withstanding the challenges on loan growth, we draw significant comfort on asset quality front led by a limited restructured portfolio, strong PCR and relatively conservative loan book build up in the past 2 years. Potential upside surprise on NIMs and contained credit costs should help the bank deliver RoA of ~1.5% for FY13 & FY14. At the current price, the stock trades at 11x FY14 EPS and 1.5x FY14 ABVS. We maintain Buy and retain the target price.