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India - ICICI BANK
Centre on profitability
Better liability mix and asset quality will support earnings. Stay BUY
We hosted a roadshow for ICICI Bank in the UK this week. Management
believes loan growth in FY12 is likely to be c.20% YoY, in line with the
sector, driven by corporate loans. Margins may be flat in FY12 and expand
in FY13, but overall profitability should improve on the back of a fall in
provisioning. Asset quality remains strong and the balance sheet is well
placed to support expansion over the next two to three years. We expect a
26% profit Cagr over FY11-14. Maintain BUY and an Rs1,390 target.
Growth with better liability mix. Management of ICICI Bank (ICICIBC
IB - Rs1,033.0 - BUY) stated confidence on c.20% loan growth for FY12, in
line with the sector, driven by lending and foreign currency loans to local
corporations. A key change in strategy vis-à-vis the past cycle is that the
firm is linking loan growth targets closely to growth in current and savings
account (CASA) deposits and it plans to maintain its share in total deposits
at about 40%.
Steady margins in FY12. Management is cautious on margins, which
could see some pressure in 1Q but likely to be stable YoY at 2.6% during
FY12. But it expects margins to expand in FY13, led by a rise in the
average CASA ratio and repricing of foreign currency assets. Improvement
in the pricing environment in the domestic market is a positive.
We believe profitability ratio will improve
ICICI’s ROA and ROE
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
FY10 FY11 FY12CL FY13CL FY14CL
10
11
12
13
14
15
16
17
18
ROA (LHS) 19
Core ROE
(%) (%)
Source: Bank, CLSA Asia-Pacific Markets
Overall asset quality stable. Management sees limited stress in
corporate and retail loans. It highlights that its exposure to some risky
sectors, such as aviation, real estate, power and telecoms, are well
secured and are unlikely to see high stress in the coming years. However,
the exposure to microfinance institutions (MFIs) (0.5% of loans) is likely to
face pressure and about 20% of this may turn into nonperforming loans.
Focus on profitability. Management expects ROA to improve to 1.5-
1.6%, led by stable margins and lower loan loss provisions. A rise in
leverage and higher ROA will support ROE expansion. With the tier-1
capital adequacy ratio at 13%, the bank is well funded to drive growth
over the next two to three years.
Maintain BUY. ICICI’s well-capitalised balance sheet should support a
23% loan Cagr over FY11-14CL, which will be the driver of our estimate of
a 26% profit Cagr over the same period. Improvement in profitability
ratios (ROA, ROE) will be key to rerating. Maintain BUY with an Rs1,390
target price.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India - ICICI BANK
Centre on profitability
Better liability mix and asset quality will support earnings. Stay BUY
We hosted a roadshow for ICICI Bank in the UK this week. Management
believes loan growth in FY12 is likely to be c.20% YoY, in line with the
sector, driven by corporate loans. Margins may be flat in FY12 and expand
in FY13, but overall profitability should improve on the back of a fall in
provisioning. Asset quality remains strong and the balance sheet is well
placed to support expansion over the next two to three years. We expect a
26% profit Cagr over FY11-14. Maintain BUY and an Rs1,390 target.
Growth with better liability mix. Management of ICICI Bank (ICICIBC
IB - Rs1,033.0 - BUY) stated confidence on c.20% loan growth for FY12, in
line with the sector, driven by lending and foreign currency loans to local
corporations. A key change in strategy vis-à-vis the past cycle is that the
firm is linking loan growth targets closely to growth in current and savings
account (CASA) deposits and it plans to maintain its share in total deposits
at about 40%.
Steady margins in FY12. Management is cautious on margins, which
could see some pressure in 1Q but likely to be stable YoY at 2.6% during
FY12. But it expects margins to expand in FY13, led by a rise in the
average CASA ratio and repricing of foreign currency assets. Improvement
in the pricing environment in the domestic market is a positive.
We believe profitability ratio will improve
ICICI’s ROA and ROE
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
FY10 FY11 FY12CL FY13CL FY14CL
10
11
12
13
14
15
16
17
18
ROA (LHS) 19
Core ROE
(%) (%)
Source: Bank, CLSA Asia-Pacific Markets
Overall asset quality stable. Management sees limited stress in
corporate and retail loans. It highlights that its exposure to some risky
sectors, such as aviation, real estate, power and telecoms, are well
secured and are unlikely to see high stress in the coming years. However,
the exposure to microfinance institutions (MFIs) (0.5% of loans) is likely to
face pressure and about 20% of this may turn into nonperforming loans.
Focus on profitability. Management expects ROA to improve to 1.5-
1.6%, led by stable margins and lower loan loss provisions. A rise in
leverage and higher ROA will support ROE expansion. With the tier-1
capital adequacy ratio at 13%, the bank is well funded to drive growth
over the next two to three years.
Maintain BUY. ICICI’s well-capitalised balance sheet should support a
23% loan Cagr over FY11-14CL, which will be the driver of our estimate of
a 26% profit Cagr over the same period. Improvement in profitability
ratios (ROA, ROE) will be key to rerating. Maintain BUY with an Rs1,390
target price.
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