ICICI Bank (Q4 FY14)
ICICI Bank's domestic loan book grew by healthy 15% yoy and the international advances increased by 11% in dollar terms.
Apr 29, 2014 02:04 IST India Infoline News Service
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Domestic book grows by 15% yoy; retail credit remains the key driver
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Savings deposits growth healthy at 16% yoy; average CASA to be sustained at 38-40% going forward
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NIM performance was resilient; weak fee growth drives cost/income ratio higher
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Influx of stressed assets on expected lines; bank expects quarterly run-rate to moderate
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Capital adequacy and RoA delivery strong; retain BUY with 9-12 month target price to Rs1,430
(Rs mn) | Q4 FY14 | Q3 FY14 | % qoq | Q4 FY13 | % yoy |
Total Interest Income | 114,893 | 114,550 | 0.3 | 103,653 | 10.8 |
Interest expended | (71,327) | (71,999) | (0.9) | (65,621) | 8.7 |
Net Interest Income | 43,565 | 42,551 | 2.4 | 38,032 | 14.5 |
Other income | 29,761 | 28,010 | 6.3 | 22,082 | 34.8 |
Total Income | 73,326 | 70,561 | 3.9 | 60,114 | 22.0 |
Operating expenses | (28,791) | (26,170) | 10.0 | (24,073) | 19.6 |
Provisions | (7,138) | (6,946) | 2.8 | (4,600) | 55.2 |
PBT | 37,397 | 37,444 | (0.1) | 31,441 | 18.9 |
Tax | (10,877) | (12,122) | (10.3) | (8,400) | 29.5 |
Reported PAT | 26,520 | 25,322 | 4.7 | 23,041 | 15.1 |
EPS | 92.0 | 87.9 | 4.7 | 79.9 | 15.1 |
Key Ratios | Q4 FY14 | Q3 FY14 | chg qoq | Q4 FY13 | chg yoy |
NIM (%) | 3.4 | 3.3 | 0.0 | 3.3 | 0.0 |
Yield on advances (%)* | 10.5 | 10.6 | (0.1) | 10.3 | 0.3 |
Yield on investment (%)* | 6.7 | 6.9 | (0.2) | 6.8 | (0.1) |
CASA (%) | 42.9 | 43.3 | (0.4) | 41.9 | 1.0 |
C/D (%) | 102.0 | 104.9 | (2.9) | 99.2 | 2.9 |
Non-interest income (%) | 40.6 | 39.7 | 0.9 | 36.7 | 3.9 |
Cost to Income (%) | 39.3 | 37.1 | 2.2 | 40.0 | (0.8) |
Provisions/Income (%) | 9.7 | 9.8 | (0.1) | 7.7 | 2.1 |
BV (Rs) | 633.8 | 641.4 | (7.6) | 578.2 | 55.6 |
RoE (%) | 15.2 | 14.3 | 0.8 | 14.5 | 0.7 |
RoA (%) | 1.9 | 1.8 | 0.0 | 1.8 | 0.1 |
CAR (%) | 17.7 | 16.8 | 0.9 | 18.7 | (1.0) |
Gross NPA (%) | 3.0 | 3.1 | (0.0) | 3.2 | (0.2) |
Net NPA (%) | 1.0 | 0.9 | 0.0 | 0.8 | 0.2 |
Domestic book grows by 15% yoy; retail credit remains the key driver
ICICI Bank's domestic loan book grew by healthy 15% yoy and the international advances increased by 11% in dollar terms. The growth in international book was largely due to lending related to the FCNR deposits raised in Q3 FY14. In the domestic business, retail book continued to grow at sturdy pace of 23% yoy (as compared to 11% yoy in FY13) owing to sustained brisk growth in mortgages (23% yoy), auto loans (38% yoy), business banking (25% yoy) and credit cards/personal loans (albeit on a very small base). Domestic corporate book grew by just 8% yoy while the SME credit de-grew by 1% yoy on account of bank's averseness in these segments underpinned by high delinquencies. Over the past four quarters, the share of retail credit in the domestic business has increased by 350bps reaching to 53%. This has been consistent with the bank's stated strategy. 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.
Savings deposits growth healthy at 16% yoy; average CASA to be in the range of 38-40% going forward
Growth in deposits was marginally behind advances at 13.5% yoy. Savings deposits continued to grow at reasonably healthy pace of 16% yoy and the CASA ratio stood at 42.9%, slightly lower than 43.3% at the end of Q3 FY14. For FY14, average CASA ratio was 39.4% being 140bps higher than FY13. Bank intends to sustain this ratio in the band of 38-40% during FY15.
NIM performance was resilient; outlook is stable
ICICI Bank's blended NIM was stable sequentially at 3.35% in-line with our expectations. Domestic NIM marginally improved by 5bps qoq to 3.72% on the back of decline in cost of deposits which in turn was driven by softening of wholesale rates. International NIM was steady at 1.71%. For FY14, the blended NIM was 3.33% being 20bps higher yoy as against bank's guided improvement of 10bps. In FY15, bank is confident of delivering NIM at near FY14 level which we think would be comfortably achieved as bulk funding cost is likely to ease gradually.
Weak fee growth drives cost/income ratio higher
Fee growth was modest at 11% yoy but the traction in retail fees remained strong. Retail fees including remittances now constitute 55-60% of overall fees. Growth in corporate banking fees continued to be weak. Treasury income stood at Rs2.5bn primarily reflecting the gains on equity investment portfolio. During the quarter, the bank received much higher dividends from its subsidiaries ICICI Life Insurance, ICICI Bank Canada and ICICI Bank UK. Additionally, bank repatriated profits worth Rs2.2bn from its overseas branches due to significant build-up of networth and muted growth outlook. Opex growth accelerated to 19% yoy as compared to 16% yoy in Q3 FY14 on normalization of retirement benefit provisions and higher provision for variable payments. This along with muted fee growth drove cost/income ratio higher by 220bps qoq to 39.3%.
Influx of stressed assets on expected lines; bank expects quarterly run-rate to moderate
Impaired assets creation during Q4 FY14 at ~Rs34bn (~Rs12.4bn fresh slippages and ~Rs21.5bn fresh restructuring) was similar to Q3 FY14 level. The deterioration was largely driven by SME and Mid-corporate segments while retail delinquencies remained benign. The restructuring pipeline is modest ~Rs15bn and the outstanding restructured portfolio stands at Rs105.6bn, 3% of advances. According to the bank, quarterly influx of impaired assets has peaked-out and it is expected to be lower in FY15 as compared to FY14. Bank expects overall credit cost in FY15 to be around 90bps as compared to 85bps in FY14.
Capital adequacy and RoA delivery strong
ICICI Bank's CAR and Tier-1 ratio as per Basel III stood at 17.7% and 12.8% respectively. Bank seems comfortably capitalized for growth revival in the next couple of years. Margin resilience and higher non-interest income enabled ICICI Bank to deliver RoA of 1.9% in Q4 FY14 despite elevated credit cost.
Retain BUY with 9-12 month target price to Rs1,430
We estimate ICICI Bank to deliver healthy earnings CAGR of 17% and sustain RoA at 1.7-1.8% over FY14-16. Bank's reassuring asset quality commentary for FY15 should allay street concerns regarding a possible sharp deterioration in NPLs. Valuation at 1.4x FY16 P/ABV (for the stand-alone bank) is attractive and represents scope for further re-rating. We retain BUY rating on ICICI Bank with 9-12 month price target to Rs1,430.
Financial Summary
Y/e 31 Mar (Rs m) | FY13 | FY14 | FY15E | FY16E |
Total operating income | 222,121 | 269,034 | 306,124 | 361,294 |
yoy growth (%) | 21.8 | 21.1 | 13.8 | 18.0 |
Operating profit (pre-prov) | 131,992 | 165,945 | 188,088 | 223,191 |
Net profit | 83,255 | 98,105 | 112,019 | 134,400 |
yoy growth (%) | 28.8 | 17.8 | 14.2 | 20.0 |
EPS (Rs) | 72.2 | 84.9 | 97.0 | 116.4 |
Adj.BVPS (Rs) | 558.8 | 605.3 | 667.4 | 746.9 |
P/E (x) | 17.6 | 14.9 | 13.1 | 10.9 |
P/BV (x) | 2.3 | 2.1 | 1.90 | 1.70 |
ROE (%) | 13.1 | 14.0 | 14.5 | 15.7 |
ROA (%) | 1.65 | 1.73 | 1.75 | 1.78 |
Dividend yield (%) | 1.6 | 1.8 | 2.0 | 2.4 |
CAR (%) | 18.8 | 17.7 | 16.4 | 14.8 |