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ICICI Bank (ICICIBC)
Banks/Financial Institutions
Quality performance. ICICI Bank reported strong core earnings with better margins
(up 10 bps qoq), improving fee income trends and better asset quality. Loan growth has
also picked up to 19% in FY2011. We expect 30% earning growth in FY2012E driven
by higher margins, better asset quality and healthy loan growth. The earning trajectory
may remain strong, but we expect ROEs to remain low, limiting big upside over the
medium term. Our TP is at `1,300 (on FY2013E basis). Stock trades at 1.9X FY2013E
book and 12X EPS. Retain ADD.
All-round strong performance
ICICI Bank reported a strong quarter as (1) margins improved by 10 bps to 2.7%, NII growth at
23% yoy in 4QFY11 was 5% ahead of estimates, (2) CASA ratio was impressive at 45%, about
40% on an average which is commendable in a rising rate environment, (3) fee income growth
was strong at 18%, driven by strong corporate fees, (4) loan growth picked up with 5% qoq
growth, FY2011 growth has been 19%, (5) asset quality further improved with net NPLs at 1.1%,
provision coverage at 76% and negligible slippage in 4Q.
In our entire banking universe, ICICI Bank is the only bank where we expect a margin
improvement. This, coupled with improving asset quality and faster growth, leads us to a strong
30% earnings growth expectation in FY2012E. Further, we see limited risks to our estimates, as
the bank is just starting to grow after a very subdued growth trend over the past several quarters.
We remain very positive on earnings, but low RoE delivery limits upsides on the stock. RoE for
FY2011 was at 9.8%, with consolidated RoE at about 11%. We expect this to increase to 15% in
FY2012-13E. We believe that valuation expansion for ICICI Bank will largely depend on its ability to
expand RoE quickly to over 15%. The stock trades at 1.9X FY2013E PBR. We raise our TP to
`1,300 (from `1,200 earlier), as we move on to FY2013E. We view the stock as more of a
defensive, with low risk (mainly on NPLs and profitability) in the current challenging environment.
Loan book grows by 5% qoq; 19% yoy growth on a low base and impact of BoR
ICICI Bank’s loan growth has reached the industry average with the management getting
confident on the overall macro environment as well as balance sheet strength. Overall loans grew
by 5% qoq and 19% yoy to `2.2 tn as of March 2011. The iImpact of BoR has been about 3% to
the overall growth. Incremental growth was mainly driven by the corporate segment on the
domestic front, which grew by 46% yoy. Retail loans grew 6% yoy—mortgages grew by 14% yoy
while commercial vehicles grew by 17% yoy. We expect loan book to grow by 20% CAGR in
FY2011-12E driven by domestic loans. The management will increase its thrust on priority sector
loans as it would like to reduce the current shortfall.
Margins improve by 10 bps qoq to 2.7% despite a challenging scenario
Despite a challenging scenario, margins showed an impressive improvement of 10 bps to
2.7% led by better lending yields and lower increase in cost of deposits. Lending yields,
which were flat at 8.3% for the past three quarters despite hikes in base rate and PLR,
improved by 30 bps for the quarter. Cost of funds increased by 20 bps to 5.7% as the bank
benefitted from shift in consumer preference on term deposits (shifted to higher interest
rates on term deposits by breaking their current contracted rates resulting in one-time
benefit for the bank). ICICI Bank remains the only bank where we see an improvement in
margins and we build about 10 bps improvement in FY2012E on the back of better repricing
of loans, improving liability profile, shift in composition of domestic and improved
pricing of international loans.
Deposits grew by 12% yoy (3.6% qoq) to `2.26 bn, aided by the merger with Bank of
Rajasthan. CASA ratio at the end of the quarter was impressive at 45% qoq. Average CASA
ratio was healthy at 39% in FY2011 as compared to about 32% in FY2010. CASA deposits
grew strongly by 21% yoy, led by strong growth in savings deposits. Post merger, ICICI Bank
has increased its branch network to 2,529 (17 branches added during the quarter) with a 3-
year target of 4,000 branches. We maintain a favorable outlook on the bank’s CASA ratio as
productivity improves not only for BoR branches but also those opened in the past three
years (about 700 branches since FY2008).
Non-interest income declined 13%; fee income was strong at 18% growth
Non-interest income declined by 13% yoy, due to losses from the investment book but core
fee income grew impressively at 18% yoy. Retail fees were at 45% of total fees compared
to 50% of total fees in December 2010 as revenues from credit card and wealth
management products continues to remain weak compared to growth in corporate fee
income. The bank reported a treasury loss of `1.96 bn mainly from MTM on the security
receipts (related to NPL sell-down) and losses from the equity book. We are building fee
income to grow by 17% CAGR in FY2012-13E on the back of higher loan growth.
Asset quality shows further improvement; provision coverage at 75%
Asset quality showed further improvement with gross and net NPL declining qoq on
absolute basis. Gross NPL and net NPL are currently at `100.3 bn (4.5% of loans) and `24.1
bn (1.1% of loans) compared to `101.9 bn and `28.7 bn in December 2010. Loan loss
provisions for the quarter were at about 75 bps (`3.8 bn) compared to about 100 bps in
December 2010. Provisions will broadly track net slippages and given the subdued business
growth in recent years, we expect this to decline further over the next few quarters. We
expect it to decline to 0.8% in FY2012-13 against 1.1% in FY2011. Restructured assets
declined `6 bn for the quarter to `20 bn (1.0% of loans).
Cost-income flat at 42% qoq despite higher expenses on staff costs
Cost-income ratio was flat at 42% despite the bank making higher expenses on staff costs.
Salary expenses have increased by 47% yoy (13% qoq growth), as the bank continue to
make higher bonus provisions during the quarter. Non-staff expenses were flat at `9.4 bn.
Opex to assets showed further increase at 1.8% in 4Q but still remains one of the best
among private banks. We, however, expect costs to grow by about 24% CAGR over next
few years on back of higher business activity and rising wage levels.
ICICI Pru Life: Reported margins flat in FY2011; muted renewal premiums
growth
Insurance business continued to remain under pressure as the total premium growth was
muted at 9% yoy. Focus remained on single premium policy given the uncertainty
surrounding the new regulatory regime but expect a shift towards regular premium policy in
the current year. Renewal premium growth was flat at `33.5 bn. ICICI Pru Life’s APE
declined by 56% yoy to `8.8 bn in 4QFY11. Reported NBAP margin was flat at 17.9%
(declined in 4QFY11) for FY2011, resulting in a 65% decline in NBAP to `1.3 bn.
Consolidated profits up 17% yoy; lower due to losses in general insurance
Consolidated net profits growth grew 17% to `15.7 bn, lower than the previous quarter as
ICICI General Insurance reported a loss on account of a revision in recording losses on motor
pools (provisional losses to be booked at 153% compared to earlier loss ratios of 122-127%)
with retrospective effect from March 2008 in the current quarter. The bank booked a loss of
`2.7 bn in the current quarter. International loans in UK and Canada saw decline in their
respective assets and RoEs in these subsidiaries continue to remain below par.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ICICI Bank (ICICIBC)
Banks/Financial Institutions
Quality performance. ICICI Bank reported strong core earnings with better margins
(up 10 bps qoq), improving fee income trends and better asset quality. Loan growth has
also picked up to 19% in FY2011. We expect 30% earning growth in FY2012E driven
by higher margins, better asset quality and healthy loan growth. The earning trajectory
may remain strong, but we expect ROEs to remain low, limiting big upside over the
medium term. Our TP is at `1,300 (on FY2013E basis). Stock trades at 1.9X FY2013E
book and 12X EPS. Retain ADD.
All-round strong performance
ICICI Bank reported a strong quarter as (1) margins improved by 10 bps to 2.7%, NII growth at
23% yoy in 4QFY11 was 5% ahead of estimates, (2) CASA ratio was impressive at 45%, about
40% on an average which is commendable in a rising rate environment, (3) fee income growth
was strong at 18%, driven by strong corporate fees, (4) loan growth picked up with 5% qoq
growth, FY2011 growth has been 19%, (5) asset quality further improved with net NPLs at 1.1%,
provision coverage at 76% and negligible slippage in 4Q.
In our entire banking universe, ICICI Bank is the only bank where we expect a margin
improvement. This, coupled with improving asset quality and faster growth, leads us to a strong
30% earnings growth expectation in FY2012E. Further, we see limited risks to our estimates, as
the bank is just starting to grow after a very subdued growth trend over the past several quarters.
We remain very positive on earnings, but low RoE delivery limits upsides on the stock. RoE for
FY2011 was at 9.8%, with consolidated RoE at about 11%. We expect this to increase to 15% in
FY2012-13E. We believe that valuation expansion for ICICI Bank will largely depend on its ability to
expand RoE quickly to over 15%. The stock trades at 1.9X FY2013E PBR. We raise our TP to
`1,300 (from `1,200 earlier), as we move on to FY2013E. We view the stock as more of a
defensive, with low risk (mainly on NPLs and profitability) in the current challenging environment.
Loan book grows by 5% qoq; 19% yoy growth on a low base and impact of BoR
ICICI Bank’s loan growth has reached the industry average with the management getting
confident on the overall macro environment as well as balance sheet strength. Overall loans grew
by 5% qoq and 19% yoy to `2.2 tn as of March 2011. The iImpact of BoR has been about 3% to
the overall growth. Incremental growth was mainly driven by the corporate segment on the
domestic front, which grew by 46% yoy. Retail loans grew 6% yoy—mortgages grew by 14% yoy
while commercial vehicles grew by 17% yoy. We expect loan book to grow by 20% CAGR in
FY2011-12E driven by domestic loans. The management will increase its thrust on priority sector
loans as it would like to reduce the current shortfall.
Margins improve by 10 bps qoq to 2.7% despite a challenging scenario
Despite a challenging scenario, margins showed an impressive improvement of 10 bps to
2.7% led by better lending yields and lower increase in cost of deposits. Lending yields,
which were flat at 8.3% for the past three quarters despite hikes in base rate and PLR,
improved by 30 bps for the quarter. Cost of funds increased by 20 bps to 5.7% as the bank
benefitted from shift in consumer preference on term deposits (shifted to higher interest
rates on term deposits by breaking their current contracted rates resulting in one-time
benefit for the bank). ICICI Bank remains the only bank where we see an improvement in
margins and we build about 10 bps improvement in FY2012E on the back of better repricing
of loans, improving liability profile, shift in composition of domestic and improved
pricing of international loans.
Deposits grew by 12% yoy (3.6% qoq) to `2.26 bn, aided by the merger with Bank of
Rajasthan. CASA ratio at the end of the quarter was impressive at 45% qoq. Average CASA
ratio was healthy at 39% in FY2011 as compared to about 32% in FY2010. CASA deposits
grew strongly by 21% yoy, led by strong growth in savings deposits. Post merger, ICICI Bank
has increased its branch network to 2,529 (17 branches added during the quarter) with a 3-
year target of 4,000 branches. We maintain a favorable outlook on the bank’s CASA ratio as
productivity improves not only for BoR branches but also those opened in the past three
years (about 700 branches since FY2008).
Non-interest income declined 13%; fee income was strong at 18% growth
Non-interest income declined by 13% yoy, due to losses from the investment book but core
fee income grew impressively at 18% yoy. Retail fees were at 45% of total fees compared
to 50% of total fees in December 2010 as revenues from credit card and wealth
management products continues to remain weak compared to growth in corporate fee
income. The bank reported a treasury loss of `1.96 bn mainly from MTM on the security
receipts (related to NPL sell-down) and losses from the equity book. We are building fee
income to grow by 17% CAGR in FY2012-13E on the back of higher loan growth.
Asset quality shows further improvement; provision coverage at 75%
Asset quality showed further improvement with gross and net NPL declining qoq on
absolute basis. Gross NPL and net NPL are currently at `100.3 bn (4.5% of loans) and `24.1
bn (1.1% of loans) compared to `101.9 bn and `28.7 bn in December 2010. Loan loss
provisions for the quarter were at about 75 bps (`3.8 bn) compared to about 100 bps in
December 2010. Provisions will broadly track net slippages and given the subdued business
growth in recent years, we expect this to decline further over the next few quarters. We
expect it to decline to 0.8% in FY2012-13 against 1.1% in FY2011. Restructured assets
declined `6 bn for the quarter to `20 bn (1.0% of loans).
Cost-income flat at 42% qoq despite higher expenses on staff costs
Cost-income ratio was flat at 42% despite the bank making higher expenses on staff costs.
Salary expenses have increased by 47% yoy (13% qoq growth), as the bank continue to
make higher bonus provisions during the quarter. Non-staff expenses were flat at `9.4 bn.
Opex to assets showed further increase at 1.8% in 4Q but still remains one of the best
among private banks. We, however, expect costs to grow by about 24% CAGR over next
few years on back of higher business activity and rising wage levels.
ICICI Pru Life: Reported margins flat in FY2011; muted renewal premiums
growth
Insurance business continued to remain under pressure as the total premium growth was
muted at 9% yoy. Focus remained on single premium policy given the uncertainty
surrounding the new regulatory regime but expect a shift towards regular premium policy in
the current year. Renewal premium growth was flat at `33.5 bn. ICICI Pru Life’s APE
declined by 56% yoy to `8.8 bn in 4QFY11. Reported NBAP margin was flat at 17.9%
(declined in 4QFY11) for FY2011, resulting in a 65% decline in NBAP to `1.3 bn.
Consolidated profits up 17% yoy; lower due to losses in general insurance
Consolidated net profits growth grew 17% to `15.7 bn, lower than the previous quarter as
ICICI General Insurance reported a loss on account of a revision in recording losses on motor
pools (provisional losses to be booked at 153% compared to earlier loss ratios of 122-127%)
with retrospective effect from March 2008 in the current quarter. The bank booked a loss of
`2.7 bn in the current quarter. International loans in UK and Canada saw decline in their
respective assets and RoEs in these subsidiaries continue to remain below par.
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