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On firm growth trajectory after a successful transformation
Over FY08-11, ICICI Bank underwent a substantial transformation
elevating its profitability matrix significantly. From per-dominantly being
a retail bank with material exposure to unsecured credit, the loan book
profile has become more diversified and robust. The share of retail
segment in the bank’s advances has declined sharply by 20ppt+ over
the past three years. The liability franchise has structurally improved
with the share of CASA deposits increasing by 15ppt+ in the aforesaid
period. After contracting balance sheet during FY08-10, the bank
starting expanding from FY11 with 20% loan growth. The momentum
has continued in Q1 FY12 and we expect ICICI Bank to grow at least inline
with the system in FY12 and FY13.
NIM would remain resilient in the longer term
In spite of higher reliance on wholesale funding and material spike in
deposit rates over the past few months, ICICI Bank’s NIM stood resilient
at 2.6% in Q1 FY12. Timely and commensurate lending rate hikes
supported margin. Bank’s quarterly NIMs have been steady in the range
of 2.5-2.7% over the past two years aided by structural improvement in
CASA ratio. We expect bank’s NIM to gradually improve from current
levels with beneficial re-pricing of wholesale deposits, stable CASA and
reasonably strong pricing power. On July 1st, bank raised its Base Rate
by 25bps without taking any deposits rate hike.
Asset quality has been stable; capital position is robust
ICICI Bank’s asset quality has been sanguine over the past four quarters
with absolute GNPLs being flattish and GNPL ratio declining by 60bps.
Slippages continue to be modest in Q1 FY12 (0.5% of advances) and
outstanding restructured assets remained benign (0.9% of book). The
net NPL ratio has come-off significantly in the past two years driven by
conservative loan-loss provisioning (PCR at 77%). We don’t foresee any
significant deterioration in asset quality in the near term. ICICI Bank’s
capital adequacy stands robust with Tier-1 ratio at 13.4% and overall
CAR at 20%. Bank is well-capitalized for longer term.
RoE to improve; valuation would re-rate
RoA has structurally improved by 25-30bps over the past four quarters
aided by robust NIMs and lower credit cost on the back of asset quality
improvement. We estimate RoA to remain at credible 1.4% in FY12 and
FY13 while RoE is likely to improve by 250bps driven by higher financial
leverage. Quarterly performance would remain strong in the medium
term with dilution in profitability matrix unlikely. With current valuation
at steep discount to peers, we expect strong re-rating in medium term.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
On firm growth trajectory after a successful transformation
Over FY08-11, ICICI Bank underwent a substantial transformation
elevating its profitability matrix significantly. From per-dominantly being
a retail bank with material exposure to unsecured credit, the loan book
profile has become more diversified and robust. The share of retail
segment in the bank’s advances has declined sharply by 20ppt+ over
the past three years. The liability franchise has structurally improved
with the share of CASA deposits increasing by 15ppt+ in the aforesaid
period. After contracting balance sheet during FY08-10, the bank
starting expanding from FY11 with 20% loan growth. The momentum
has continued in Q1 FY12 and we expect ICICI Bank to grow at least inline
with the system in FY12 and FY13.
NIM would remain resilient in the longer term
In spite of higher reliance on wholesale funding and material spike in
deposit rates over the past few months, ICICI Bank’s NIM stood resilient
at 2.6% in Q1 FY12. Timely and commensurate lending rate hikes
supported margin. Bank’s quarterly NIMs have been steady in the range
of 2.5-2.7% over the past two years aided by structural improvement in
CASA ratio. We expect bank’s NIM to gradually improve from current
levels with beneficial re-pricing of wholesale deposits, stable CASA and
reasonably strong pricing power. On July 1st, bank raised its Base Rate
by 25bps without taking any deposits rate hike.
Asset quality has been stable; capital position is robust
ICICI Bank’s asset quality has been sanguine over the past four quarters
with absolute GNPLs being flattish and GNPL ratio declining by 60bps.
Slippages continue to be modest in Q1 FY12 (0.5% of advances) and
outstanding restructured assets remained benign (0.9% of book). The
net NPL ratio has come-off significantly in the past two years driven by
conservative loan-loss provisioning (PCR at 77%). We don’t foresee any
significant deterioration in asset quality in the near term. ICICI Bank’s
capital adequacy stands robust with Tier-1 ratio at 13.4% and overall
CAR at 20%. Bank is well-capitalized for longer term.
RoE to improve; valuation would re-rate
RoA has structurally improved by 25-30bps over the past four quarters
aided by robust NIMs and lower credit cost on the back of asset quality
improvement. We estimate RoA to remain at credible 1.4% in FY12 and
FY13 while RoE is likely to improve by 250bps driven by higher financial
leverage. Quarterly performance would remain strong in the medium
term with dilution in profitability matrix unlikely. With current valuation
at steep discount to peers, we expect strong re-rating in medium term.
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