ICICI Bank - Loan growth and balance sheet strength: LKP

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Key Highlights

Ä     ICICI Bank reported a 23%yoy growth in PAT for Q4FY11 and a 28% growth in FY11 PAT yoy.The growth in PAT was on account of NII growth and lower provisioning. Results were better than expected due to the lower provisioning reported in the quarter.

Ä     NII grew by 11% yoy and NIMs for the quarter increased to 2.6% YoY as compared to 2.5%. Domestic NIMs were 3% + while international NIMs were 85 bps during FY11.

Ä     The management delivered on guidance, the loan book grew by 19% led by growth in domestic corporate portfolio and SME assets. Retail loan book grew by 7% yoy with growth in housing and commercial business. Going forward the management has given a positive guidance on retail loan growth within secured assets.

Ä     The bank’s CD ratio was high at 0.96x v/s 0.90 yoy. Deposit base grew by 12% mainly on account of the roll off of short maturity deposits (term deposits grew by 5% yoy). the bank has maintained CASA at 45% over the quarter, a growth of 21% yoy. Although current account remained volatile during the year, SA grew by 26% yoy. The increase in CASA has made a difference in cost of funds which translated to higher NIMs.

Ä     The bank has improved asset quality during the year and reduced the provisioning burden in P&L by 61% yoy in Q4FY11 and 48% yoy in FY11. The bank’s gross NPAs were Rs.101bn stable on a qoq basis which translates to ~4.7% in FY11 v/s 5.2% yoy on account of write offs during the quarter of Rs.600mn and near-zero slippages. The bank has increased PCR to 76% from 59% yoy translating to net npas of Rs.24.6 bn (0.94% v/s 1.9% yoy). The restructured portfolio of the bank has reduced to Rs.19.7 bn fromRs.25.6 bn yoy.

Ä     The bank’s non interest income decreased by 13% yoy. This was mainly on account of lower retail fee income. The share of retail fees (linked to loan book growth and credit cards) reduced from 55% to 45% yoy.  The bank’s cost to income (C/I) ratio including direct marketing agent (DMA) expenses was higher during the quarter at 42% v/s 39% yoy  mainly on account of employee expenses which reflected the full quarter BoR acquisition and bonus payout not provided for in previous quarters. 

·         The bank’s balance sheet de-grew by 12% YoY to Rs. 4062bn with a CAR of ~19.5% (Tier I CAR of 13.2%). The bank’s RoE (standalone) increased to 9.6% v/s 7.9% yoy and consolidated to 11.6% v/s 9.6% in Fy11 over FY10.  RoA in FY11 improved to 1.3% from 1.1%.

We have moved to FY13E and continue to value the bank on SoTP. The standalone business of the bank trades at 1.5 xs and 1.4x on our FY12E and FY13E ABV (adj for subsidiary valuations). We have valued the standalone book at a 1.8x P/ABV. We reiterate a BUY on the stock with a target price of Rs.1,313 per share.