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ICICI Bank
Overweight
ICBK.BO, ICICIBC IN
Firing on all cylinders
• ICICI reported strong 2Q numbers, with PAT beating our forecast by
14%. The bank is now hitting all the right buttons, with NPLs, deposit
quality improving, and the loan book starting to expand. We raise our
EPS and PT (by 3-6% to Rs1350/share) — the stock stays OW and a top
pick, driven by improving return ratios.
• Asset quality continues to rapidly improve. Incremental (net)
delinquencies, ex-BOR additions, were ~zero. We estimate normalized
credit costs at ~50bps for the quarter and we see 2H credit costs falling
by 35% h/h, given provision coverage at 69% vs. the 70% RBI
requirement. The low credit costs are not a surprise, given widespread
evidence that retail delinquencies, industrywide, are at multi-year lows.
• Growth is back - margins, CASA strong. The loan book has started to
expand, with the retail book stabilizing and the international book
starting to kick in. The book is pristine with CASA ratio at 44%.
Margins, therefore, held up at 2.6% and could move up given
incremental international lending at ~150bp spreads.
• Revising earnings. We revise up our EPS estimates by 3-6% driven by
marginally higher margins and lower credit costs. Our numbers now
factor in BOR consolidation. We now assume ~100bps of credit costs
for ICICI Bank but provisions could surprise in the near term.
• Remarkable transformation. Since 4Q09 (the low after the GFC),
CASA ratio is up from 29% to 44%, credit costs are down from 1.9% to
1.4% (with an interim peak of 2.5%), CASA balances are up by 35%
p.a. and ROA is up from 0.9% to 1.3%. True, there has been a
significant re-rating too, but we see financial metrics structurally
improved and the possibility of consensus upgrades on loan growth and
credit costs very high. The stock stays a top pick and OW.
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