ICICI Bank (Q1 FY15)

India Infoline News Service | Mumbai |

ICICI Bank’s domestic loan book growth accelerated to 17% yoy from 15% yoy in the previous quarter.

CMP Rs1,473, Target Rs1,768, Upside 20.2% 
  • Domestic loan book growth accelerates to 17% yoy; retail credit grows by robust 27% yoy

  • Average CASA ratio better than Q4 FY14; NIM touches historic high of 3.4%

  • Fee growth weakens further; lower opex growth drives improvement in cost/income ratio

  • Influx of stressed assets moderates; bank expects lower impairments in FY15

  • Retain BUY and enhance 9-12 month target price to Rs1,768

Result table
(Rs mn) Q1 FY15 Q4 FY14 % qoq Q1 FY14 % yoy
Total Interest Income 117,669 114,893 2.4 104,207 12.9
Interest expended (72,750) (71,327) 2.0 (66,002) 10.2
Net Interest Income 44,919 43,565 3.1 38,205 17.6
Other income 28,498 29,761 (4.2) 24,843 14.7
Total Income 73,417 73,326 0.1 63,048 16.4
Operating expenses (28,250) (28,791) (1.9) (24,906) 13.4
Provisions (7,261) (7,138) 1.7 (5,932) 22.4
PBT 37,906 37,397 1.4 32,210 17.7
Tax (11,353) (10,877) 4.4 (9,468) 19.9
Reported PAT 26,553 26,520 0.1 22,742 16.8
EPS 92.1 92.0 0.1 78.9 16.8

Key  Ratios Q1 FY15 Q4 FY14 chg qoq Q1 FY14 chg yoy
NIM (%) 3.4 3.4 0.0 3.3 0.1
Yield on advances (%)* 10.4 10.5 (0.2) 10.1 0.3
Yield on investment (%)* 6.9 6.7 0.2 7.0 (0.1)
CASA (%) 43.0 42.9 0.1 43.2 (0.2)
C/D (%) 103.4 102.0 1.3 103.5 (0.1)
Non-interest income (%) 38.8 40.6 (1.8) 39.4 (0.6)
Cost to Income (%) 38.5 39.3 (0.8) 39.5 (1.0)
Provisions/Income (%) 9.9 9.7 0.2 9.4 0.5
BV (Rs) 656.4 633.8 22.6 607.2 49.2
RoE (%) 14.6 15.2 (0.6) 13.7 0.9
RoA (%) 1.9 1.9 (0.0) 1.8 0.1
CAR (%) 17.0 17.7 (0.7) 18.4 (1.4)
Gross NPA (%) 3.1 3.0 0.0 3.2 (0.2)
Net NPA (%) 1.0 1.0 0.0 0.8 0.2
Source: Company, India Infoline Research

Domestic loan growth accelerates to 17% yoy; retail credit grows by robust 27% yoy

ICICI Bank’s domestic loan book growth accelerated to 17% yoy from 15% yoy in the previous quarter. This continues to be driven by improving growth traction in retail advances (grew by robust 27% yoy; pace has accelerated from 19% yoy in Q2 FY14). Within retail, bank witnessed strong growth in home loans (24% yoy; 54% of portfolio), auto loans (47% yoy; 12% of portfolio), business banking (22% yoy; 6% of portfolio) and personal loans (154% yoy; 3.4% of portfolio). Growth in domestic corporate advances remained muted at 8% yoy reflecting lackluster investment activity. Banks also remains cautious in the SME financing space manifested in portfolio growing by just 10% yoy on a small base.

Over the past several quarters, the share of retail credit in the domestic business has increased significantly reaching 53% in Q1 FY15 (consistent with the bank’s strategy). International advances grew by x% yoy in dollar terms (portfolio share at 25.6%) mainly attributable to FCNR deposits related lending. In FY15, ICICI Bank expects its domestic loan growth to be 2-4% higher than the system aided by 20%+ growth in the retail segment. Banks remains well-capitalized for growth with Tier-1 ratio at 12.6% including Q1 FY15 profits and after adjusting for combined 45bps hit due to credit value adjustment on derivative exposures and capital charge required for borrowers with unhedged foreign currency exposures. Bank does not envisage any capital requirement for the next three years. We estimate ICICI Bank to grow its loan book by 16% in FY15 and 19% in FY16. 

Average CASA ratio better than Q4 FY14; NIM touches historic high of 3.4%

Growth in deposits was in-line with advances at 15% yoy. Savings deposits continued to grow at reasonably healthy pace of 16% yoy and the CASA ratio stood at 43%, nearly flat qoq. However, on daily average basis, the ratio improved from 39.1% to 39.5%. Bank intends to sustain average CASA ratio in the band of 38-40% during FY15. 

ICICI Bank’s blended NIM improved marginally qoq touching a historic high of 3.4%. Domestic NIM also improved to highest-ever 3.8% (3.7% in Q4 FY14) driven by shift in loan mix and benign cost of deposits. International NIM was largely stable at 1.65%. Bank is confident of sustaining blended NIMs during the year which is likely to receive support from increasing share of domestic business and improving contribution of retail advances within. Moderation in wholesale borrowing cost on the back of comfortable liquidity conditions could act as additional lever.

Fee growth weakens further; lower opex growth drives improvement in the cost/income ratio

After decelerating to 11-13% yoy in the previous two quarters, fee growth weakened further to 8% yoy on account of persistent stress on corporate fees. Retail fees which now account for 55-60% of aggregate fees continued to grow at much stronger pace. Treasury income stood sequentially higher at Rs3.9bn primarily reflecting gains on equity and bond investment portfolio. During the quarter, the bank received much higher dividend from ICICI Life based on the increased payout levels approved by its Board. Additionally, bank repatriated profits (also realized exchange rate gains of Rs1bn on the same) from its overseas branches due to significant build-up of networth and muted growth outlook. Opex growth moderated to 13% yoy as compared to 19% yoy in Q4 FY14 and this drove a material improvement of 80bps in the cost/income ratio.


Influx of stressed assets moderates; bank expects lower impairments in FY15

In-line with bank’s commentary in the previous quarter, the overall addition of impaired assets was lower qoq at Rs26bn (34bn in Q4 FY14). Of this, the slippages were stable at Rs12bn (annualized delinquency ratio at 1.4%) mainly representing stress in SME and mid-corporate segments while fresh restructuring was significantly lower at Rs14bn (Rs22bn in Q4 FY14). The restructuring pipeline is modest ~Rs15bn and the outstanding restructured portfolio stands at Rs113bn, 3.2% of advances. According to the bank, quarterly influx of impaired assets has peaked-out and the quantum is expected to be lower in FY15 as compared to FY14 (Rs108bn). During Q1 FY15, bank provided Rs550mn (Rs1.65bn to be provided in residual year) towards unhedged foreign currency exposures of borrowers and including it the credit cost stood at 22bps ICICI Bank expects overall credit cost in FY15 to be within 90bps (85bps in FY14). Additionally, in Q1 FY15 the bank created DTL on Special Reserve (as per RBI circular) to the tune of Rs0.95bn thus leading to marginal increase in tax rate to 30%. Aided by the improvement in cost/income ratio, RoA was sustained at an elevated level of 1.9%. 

Retain BUY and enhance 9-12 month target price to Rs1,768

We estimate ICICI Bank to deliver healthy earnings CAGR of 17% and sustain RoA at 1.8% over FY14-16 on stand-alone basis. The strong financial performance would be driven by firm NIMs, decline in cost/income ratio and moderation in credit cost. A sharp improvement in capital market conditions and increase in FDI limit in Insurance has significantly enhanced valuation of the bank’s subsidiaries in these sectors. Stripping off the valuation of all subsidiaries form the price, the bank is trading at an attractive 1.6x FY16 P/ABV. We retain BUY rating on ICICI Bank with an enhanced SOTP based 9‐12 month price target to Rs1,768


Financial Summary
Y/e 31 Mar (Rs m) FY13 FY14 FY15E FY16E
Total operating income 222,121 269,034 308,618 361,174
yoy growth (%) 21.8 21.1 14.7 17.0
Operating profit (pre-prov) 131,992 165,945 190,582 223,662
Net profit 83,255 98,105 111,503 133,519
yoy growth (%) 28.8 17.8 13.7 19.7
       
EPS (Rs) 72.2 84.9 96.5 115.6
Adj.BVPS (Rs) 558.8 605.3 667.1 746.6
P/E (x) 20.4 17.3 15.2 12.7
P/BV (x) 2.6 2.4 2.20 1.97
ROE (%) 13.1 14.0 14.5 15.6
ROA (%) 1.65 1.73 1.76 1.82
Dividend yield (%) 1.4 1.6 1.8 2.0
CAR (%) 18.8 17.7 16.0 14.5
Source: Company, India Infoline Research
 

***Note: This is a NSE Chart

 

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