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Balancing growth and quality
ICICI Bank’s 1QFY12 profit of Rs13.3bn, up 30% YoY, was inline with our
estimates. We were positively surprised by uptick in loan growth to 20%
YoY as well as higher than expected NIMs. Management is confident of
18-20% growth in loans and stable margins during FY12. Asset quality
trends were also encouraging, but provision towards new norms lowered
profit by 8%. Management comments on quality of exposures to some
risky sectors were also reassuring. Slower fee growth was key negative in
the results. We see 26% Cagr in earnings over FY11-14 and triggers for
re-rating from ROE expansion and reasonable valuations. Maintain BUY.
Margin stability in volatile environments
ICICI’s focus to improvement in its liability franchise through increase the in
CASA ratio and balanced ALM is helping it to sustain stable margins in spite of
market volatilities. This reflects in margins that have been in a narrow band
of 2.5-2.7% over past 8 quarters; 1Q NIM at 2.6% was above expectations.
CASA growth of 14% YoY and CASA ratio of 42% indicates some moderations,
but management indicated that average CASA profile was better than 4Q.
Expect healthy growth and stable margins in FY12
Management expects 18-20% growth in loans during FY12 and NIMs to be
stable near current levels- higher CASA ratio will help ICICI to leverage on
working capital demand to offset slowdown in investment linked disbursals.
We were tad disappointed by slower fee growth of 12% and an uptick here
will be linked closely to pick-up in investment-linked loan growth.
Asset quality holding-up
During 1Q, fresh NPL formation was at manageable levels, but bank also
recognised ~Rs2bn of exposure to micro finance institutions (MFI) as NPL and
another ~Rs7bn may be restructured in 2Q. Management was also confident
of quality of exposures in power and real estate sectors. While conversion of
loans to GTL Ltd into equity by revoking pledged shares raises concerns, we
believe that there is low risk of loss on this exposure as the bank possesses
sufficient security.
Attractively valued; Maintain BUY
We expect ICICI to report 26% growth in profit over FY11-14 driven by a
healthy loan growth and lower credit costs. High ROA and rise in leverage will
drive +500bps expansion in ROE to 18% in FY14. During 1Q, consolidated
profit was 25% higher than standalone profit and valuations are reasonable at
15x FY12CL consolidated PE. We retain our BUY reco with target price of
Rs1,390 that includes value of bank at 2.5x FY13 adjusted PB.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Balancing growth and quality
ICICI Bank’s 1QFY12 profit of Rs13.3bn, up 30% YoY, was inline with our
estimates. We were positively surprised by uptick in loan growth to 20%
YoY as well as higher than expected NIMs. Management is confident of
18-20% growth in loans and stable margins during FY12. Asset quality
trends were also encouraging, but provision towards new norms lowered
profit by 8%. Management comments on quality of exposures to some
risky sectors were also reassuring. Slower fee growth was key negative in
the results. We see 26% Cagr in earnings over FY11-14 and triggers for
re-rating from ROE expansion and reasonable valuations. Maintain BUY.
Margin stability in volatile environments
ICICI’s focus to improvement in its liability franchise through increase the in
CASA ratio and balanced ALM is helping it to sustain stable margins in spite of
market volatilities. This reflects in margins that have been in a narrow band
of 2.5-2.7% over past 8 quarters; 1Q NIM at 2.6% was above expectations.
CASA growth of 14% YoY and CASA ratio of 42% indicates some moderations,
but management indicated that average CASA profile was better than 4Q.
Expect healthy growth and stable margins in FY12
Management expects 18-20% growth in loans during FY12 and NIMs to be
stable near current levels- higher CASA ratio will help ICICI to leverage on
working capital demand to offset slowdown in investment linked disbursals.
We were tad disappointed by slower fee growth of 12% and an uptick here
will be linked closely to pick-up in investment-linked loan growth.
Asset quality holding-up
During 1Q, fresh NPL formation was at manageable levels, but bank also
recognised ~Rs2bn of exposure to micro finance institutions (MFI) as NPL and
another ~Rs7bn may be restructured in 2Q. Management was also confident
of quality of exposures in power and real estate sectors. While conversion of
loans to GTL Ltd into equity by revoking pledged shares raises concerns, we
believe that there is low risk of loss on this exposure as the bank possesses
sufficient security.
Attractively valued; Maintain BUY
We expect ICICI to report 26% growth in profit over FY11-14 driven by a
healthy loan growth and lower credit costs. High ROA and rise in leverage will
drive +500bps expansion in ROE to 18% in FY14. During 1Q, consolidated
profit was 25% higher than standalone profit and valuations are reasonable at
15x FY12CL consolidated PE. We retain our BUY reco with target price of
Rs1,390 that includes value of bank at 2.5x FY13 adjusted PB.
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