ICICI Bank: 2QFY11 results – in-line : IIFL

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2QFY11 results – in-line
ICICI Bank’s (ICICIBC) 2QFY11 net profit increased by 19% to Rs12.4bn, in line with our estimate,
but ahead of market consensus. Net profit growth was driven by a fall in loan loss provisions (LLP) and
lower taxation rate. Balance-sheet growth, adjusted for Bank of Rajasthan’s (BOR) acquisition,
remained muted at 2%, but the consolidation phase appears to be over. Going forward, loan growth
would likely gather pace, but cost growth would accelerate as well. Loan growth would likely remain
below system level, in our view. We raise earnings to reflect the effect of BOR merger and decline in
credit costs by 6-8% over FY11-FY13ii. We increase our target price to Rs938. We retain REDUCE.





2QFY11 results – in-line: ICICIBC’s net profit increased by 19% to Rs12.4bn. This was in-line with our
estimate, but ahead of market consensus. Profit growth was driven by sharp decline in credit costs. Growth
was also boosted by lower taxation rate. But for these, profit growth would have been lower than our
estimate; revenue was lower than our estimates, while cost was higher. Asset quality showed significant
improvement. Merger of BOR drove the effective tax rate lower. CASA ratio showed significant improvement.

Upside to earnings outlook mainly from lower credit cost: We expect growth to gather pace, driven by
retail and corporate assets. Retail disbursements would likely increase, resulting in net accretion to book;
corporate loan book is likely to show greater growth momentum. However, cost growth too would accelerate,
driven by branch expansion and retail asset growth. Upside to earnings would mainly accrue from fall in
credit costs and modest NIM expansion.
We retain REDUCE, due to lack of catalyst: The much expected turnaround in the growth trajectory of
ICICIBC’s balance-sheet is beginning to emerge. However, we believe the bank would likely under-perform
its peer group. Even though the bank would benefit from lower credit cost, ROE would likely remain
subdued. Risks to the valuation of life insurance too would likely remain. We retain REDUCE.