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Key profitability vectors in place; Growth remains a key
Sustainable improvement in return ratios; Valuations at discount to mean
Post balance sheet consolidation, we believe profitability vectors are now in place for improvement
in RoAs to 1.5%: (a) CASA ratio, (b) margins, (c) higher proportion of secured loans (d) strict control
over opex, and (e) strong fee income source. Expected improvement in international NIMs and fall
in securitization losses will provide further fillip to earnings growth. Loan growth remains a key to
increase core RoEs to 15% by FY13. Strong CAR of 20% with tier-I ratio of ~14% will ensure dilutionfree
growth.
Commendable execution on 5Cs strategy: ICICIBC has significantly consolidated balance sheet between
FY08-10 to improve key profitability vectors for sustainable earnings growth . Execution of 5C's strategy is
commendable: (1) Average CASA ratio up to ~40% (v/s 22% FY07), (2) Cost efficiency is better with C/I
ratio declining to ~42% v/s 58% in FY07, (3) Credit quality has improved with NNPA declining to 1.2% and
PCR increasing to 72%, (4) Credit growth is higher at 18%, and (5) Customer service has been enhanced
by expanding branch network to 2,500+ (from ~1,400 in FY09).
NIMs to improve gradually: Over FY11-13, NIM is expected to improve as the bank is likely to grow its
high yielding auto loans, the full impact of the rate hike will be visible, CASA ratio will remain high at 40%+
and slippages are down sharply. A fall in securitization losses and uptick in international margins with
liability repricing will also help margin expansion. We model in NIMs of 2.7-2.8% over FY12-13.
Decline in credit costs to boost return ratios: ICICIBC's moderate loan growth over the past two years,
seasoning of retail loans and increased proportion of secured products are resulting in lower incremental
slippages and credit cost. This will be one of the key drivers for improvement in RoAs. We model credit
costs to fall 85bp in FY12 and 95bp in FY13 (v/s 100bp in FY11).
Valuations at mean levels; concerns overdone: We are positive about ICICIBC given (a) expected
improvement in core performance (led by loan growth), (b) strong capitalization (~14% tier-I), and (c) value
unlocking potential from other business ventures. Concerns regarding rising exposure to infrastructure
segment over the past three years are overdone in our view. We expect ICICIBC's adjusted RoE to improve
to 14% by FY12 and 15% in FY13. We maintain Buy with SOTP target price of INR1,125.
Improved liability mix a key positive; RoEs to improve to 15%
ICICIBC loans were flat between FY08-11, as
it was restructuring the balance sheet for the
profitable growth ahead. Bank has significantly
increased its focus on secured loans.
Structural improvement on liability side provides
comfort with improved ALM, fall in proportion
of bulk deposits and strong CASA ratio. During
the balance sheet consolidation phase the
proportion of less than one year deposits have
declined to 44% vs 65% in FY08
Seasoned retail portfolio coupled with the
conscious decision of moderation in loans will
help ICICIBC to restrict slippages going
forward. Fall in slippages will lead to lower credit
cost and will be a key driver for RoAs
While we expect core PPP CAGR of 18%; PAT
CAGR is expected to be 22% over FY11-13.
RoAs are likely to improve to 1.5% (inline with
other private sector banks) and improving
leverage will lead to core RoEs improving to
15% by FY13.
ICICIBC loans were flat between FY08-11, as
it was restructuring the balance sheet for the
profitable growth ahead. Bank has significantly
increased its focus on secured loans.
Structural improvement on liability side provides
comfort with improved ALM, fall in proportion
of bulk deposits and strong CASA ratio. During
the balance sheet consolidation phase the
proportion of less than one year deposits have
declined to 44% vs 65% in FY08
Seasoned retail portfolio coupled with the
conscious decision of moderation in loans will
help ICICIBC to restrict slippages going
forward. Fall in slippages will lead to lower credit
cost and will be a key driver for RoAs
While we expect core PPP CAGR of 18%; PAT
CAGR is expected to be 22% over FY11-13.
RoAs are likely to improve to 1.5% (inline with
other private sector banks) and improving
leverage will lead to core RoEs improving to
15% by FY13.
1QFY12: NIMs largely stable, improvement expected ahead; PCR improved sharply
As of 1QFY12, Loans grew ~20% YoY to
INR2.2t, led by the corporate segment (up
13.5% QoQ and 40%+ YoY) and the SME
segment (6% QoQ and 50% YoY). Sharp rise
in interest rates will unlikely to have higher
growth in Auto and Home loans thus, corporate
loans will continue to be a key driver
Despite fall in proportion of high yielding
unsecured loans, higher NPAs ICICIBC's NIMs
remained above 2.5% over last two years. As
most of the legacy issues subside; improvement
in liability profile, fall in securitization losses and
improving international NIMs, will drive NIMs
In 1QFY12, fee income moderated led by a
slowdown in project loans and lower syndication
business. The management expects fee income
growth to be in line with asset growth.
1QFY12, GNPA in absolute terms was flat
QoQ. Gross slippages were INR7.5b
(annualized slippage ratio 1.4%) of which
INR2b of MFI loans (buyout) slipped into NPA.
O/S restructured loan book (stable QoQ) was
a mere 0.9% of the overall loan book. Decline
in unsecured personal loans and a lower
proportion of restructured loans provide comfort
on asset quality. As of 1QFY12, Loans grew ~20% YoY to
INR2.2t, led by the corporate segment (up
13.5% QoQ and 40%+ YoY) and the SME
segment (6% QoQ and 50% YoY). Sharp rise
in interest rates will unlikely to have higher
growth in Auto and Home loans thus, corporate
loans will continue to be a key driver
Despite fall in proportion of high yielding
unsecured loans, higher NPAs ICICIBC's NIMs
remained above 2.5% over last two years. As
most of the legacy issues subside; improvement
in liability profile, fall in securitization losses and
improving international NIMs, will drive NIMs
In 1QFY12, fee income moderated led by a
slowdown in project loans and lower syndication
business. The management expects fee income
growth to be in line with asset growth.
1QFY12, GNPA in absolute terms was flat
QoQ. Gross slippages were INR7.5b
(annualized slippage ratio 1.4%) of which
INR2b of MFI loans (buyout) slipped into NPA.
O/S restructured loan book (stable QoQ) was
a mere 0.9% of the overall loan book. Decline
in unsecured personal loans and a lower
proportion of restructured loans provide comfort
on asset quality.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key profitability vectors in place; Growth remains a key
Sustainable improvement in return ratios; Valuations at discount to mean
Post balance sheet consolidation, we believe profitability vectors are now in place for improvement
in RoAs to 1.5%: (a) CASA ratio, (b) margins, (c) higher proportion of secured loans (d) strict control
over opex, and (e) strong fee income source. Expected improvement in international NIMs and fall
in securitization losses will provide further fillip to earnings growth. Loan growth remains a key to
increase core RoEs to 15% by FY13. Strong CAR of 20% with tier-I ratio of ~14% will ensure dilutionfree
growth.
Commendable execution on 5Cs strategy: ICICIBC has significantly consolidated balance sheet between
FY08-10 to improve key profitability vectors for sustainable earnings growth . Execution of 5C's strategy is
commendable: (1) Average CASA ratio up to ~40% (v/s 22% FY07), (2) Cost efficiency is better with C/I
ratio declining to ~42% v/s 58% in FY07, (3) Credit quality has improved with NNPA declining to 1.2% and
PCR increasing to 72%, (4) Credit growth is higher at 18%, and (5) Customer service has been enhanced
by expanding branch network to 2,500+ (from ~1,400 in FY09).
NIMs to improve gradually: Over FY11-13, NIM is expected to improve as the bank is likely to grow its
high yielding auto loans, the full impact of the rate hike will be visible, CASA ratio will remain high at 40%+
and slippages are down sharply. A fall in securitization losses and uptick in international margins with
liability repricing will also help margin expansion. We model in NIMs of 2.7-2.8% over FY12-13.
Decline in credit costs to boost return ratios: ICICIBC's moderate loan growth over the past two years,
seasoning of retail loans and increased proportion of secured products are resulting in lower incremental
slippages and credit cost. This will be one of the key drivers for improvement in RoAs. We model credit
costs to fall 85bp in FY12 and 95bp in FY13 (v/s 100bp in FY11).
Valuations at mean levels; concerns overdone: We are positive about ICICIBC given (a) expected
improvement in core performance (led by loan growth), (b) strong capitalization (~14% tier-I), and (c) value
unlocking potential from other business ventures. Concerns regarding rising exposure to infrastructure
segment over the past three years are overdone in our view. We expect ICICIBC's adjusted RoE to improve
to 14% by FY12 and 15% in FY13. We maintain Buy with SOTP target price of INR1,125.
Improved liability mix a key positive; RoEs to improve to 15%
ICICIBC loans were flat between FY08-11, as
it was restructuring the balance sheet for the
profitable growth ahead. Bank has significantly
increased its focus on secured loans.
Structural improvement on liability side provides
comfort with improved ALM, fall in proportion
of bulk deposits and strong CASA ratio. During
the balance sheet consolidation phase the
proportion of less than one year deposits have
declined to 44% vs 65% in FY08
Seasoned retail portfolio coupled with the
conscious decision of moderation in loans will
help ICICIBC to restrict slippages going
forward. Fall in slippages will lead to lower credit
cost and will be a key driver for RoAs
While we expect core PPP CAGR of 18%; PAT
CAGR is expected to be 22% over FY11-13.
RoAs are likely to improve to 1.5% (inline with
other private sector banks) and improving
leverage will lead to core RoEs improving to
15% by FY13.
ICICIBC loans were flat between FY08-11, as
it was restructuring the balance sheet for the
profitable growth ahead. Bank has significantly
increased its focus on secured loans.
Structural improvement on liability side provides
comfort with improved ALM, fall in proportion
of bulk deposits and strong CASA ratio. During
the balance sheet consolidation phase the
proportion of less than one year deposits have
declined to 44% vs 65% in FY08
Seasoned retail portfolio coupled with the
conscious decision of moderation in loans will
help ICICIBC to restrict slippages going
forward. Fall in slippages will lead to lower credit
cost and will be a key driver for RoAs
While we expect core PPP CAGR of 18%; PAT
CAGR is expected to be 22% over FY11-13.
RoAs are likely to improve to 1.5% (inline with
other private sector banks) and improving
leverage will lead to core RoEs improving to
15% by FY13.
1QFY12: NIMs largely stable, improvement expected ahead; PCR improved sharply
As of 1QFY12, Loans grew ~20% YoY to
INR2.2t, led by the corporate segment (up
13.5% QoQ and 40%+ YoY) and the SME
segment (6% QoQ and 50% YoY). Sharp rise
in interest rates will unlikely to have higher
growth in Auto and Home loans thus, corporate
loans will continue to be a key driver
Despite fall in proportion of high yielding
unsecured loans, higher NPAs ICICIBC's NIMs
remained above 2.5% over last two years. As
most of the legacy issues subside; improvement
in liability profile, fall in securitization losses and
improving international NIMs, will drive NIMs
In 1QFY12, fee income moderated led by a
slowdown in project loans and lower syndication
business. The management expects fee income
growth to be in line with asset growth.
1QFY12, GNPA in absolute terms was flat
QoQ. Gross slippages were INR7.5b
(annualized slippage ratio 1.4%) of which
INR2b of MFI loans (buyout) slipped into NPA.
O/S restructured loan book (stable QoQ) was
a mere 0.9% of the overall loan book. Decline
in unsecured personal loans and a lower
proportion of restructured loans provide comfort
on asset quality. As of 1QFY12, Loans grew ~20% YoY to
INR2.2t, led by the corporate segment (up
13.5% QoQ and 40%+ YoY) and the SME
segment (6% QoQ and 50% YoY). Sharp rise
in interest rates will unlikely to have higher
growth in Auto and Home loans thus, corporate
loans will continue to be a key driver
Despite fall in proportion of high yielding
unsecured loans, higher NPAs ICICIBC's NIMs
remained above 2.5% over last two years. As
most of the legacy issues subside; improvement
in liability profile, fall in securitization losses and
improving international NIMs, will drive NIMs
In 1QFY12, fee income moderated led by a
slowdown in project loans and lower syndication
business. The management expects fee income
growth to be in line with asset growth.
1QFY12, GNPA in absolute terms was flat
QoQ. Gross slippages were INR7.5b
(annualized slippage ratio 1.4%) of which
INR2b of MFI loans (buyout) slipped into NPA.
O/S restructured loan book (stable QoQ) was
a mere 0.9% of the overall loan book. Decline
in unsecured personal loans and a lower
proportion of restructured loans provide comfort
on asset quality.
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