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● We expect the adverse shift in the macro environment to start
reflecting in ICICI profitabiltiy from the upcoming 2Q results as
loan and fee growth decelerates and asset quality deteriorates.
● Even as domestic corporate segment loan growth is likely to
remain at ~20% on the disbursements to infra projects, with rise in
rates, its retail disbursements have likely slowed. Lack of fresh
approvals and syndication activity will impact fee growth, which
we expect to start lagging asset growth, resulting in ROA
moderation.
● Credit costs that had moved up to 80 bp in 1Q (70 bp in 4Q11) are
likely to remain moderate. However, restructured asset levels for
the bank are expected to start rising from 2Q on account of its
microfinance, telecom and power sector exposures.
● While stock valuations have moderated to 1.7x FY12E book, with
stress assets increasing and ROAs under pressure, re-rating is
unlikely. Retain NEUTRAL and lowering target price to Rs934
(from Rs1,065) at 1.7x FY13E BV
Macro-headwinds are visible
The rise in interest rates and slowdown in the pace of economic
growth will likely manifest in a deceleration in loan growth, a
compression in NIMs and deterioration in asset quality. The bank
expects FY12 loan growth to be in line with system growth at ~18%
levels (versus 18% levels in FY11), mainly driven by the infrastructure,
project finance and mortgage loans. While the bank has earlier
international loan book growth guidance of 15-20% and expansion in
international NIMs, given the recent increase in CDS spreads
(currently ICICI Bank’s CDS spreads are at LIBOR + 445 bp), these
are likely to be difficult to achieve. Even though near term international
loan growth shall be aided by the recent rupee depreciation, this may
come under pressure in the medium term. The NIMs that had dropped
10 bp in 1Q are likely to remain under pressure even in 2Q as deposit
cost re-pricing will continue. Also, given the sharp rise in the term
deposit rates, CASA growth shall be under pressure and CASA share
is likely to come down from the 40% levels in 1Q12.
Fees to start lagging asset growth
ICICI draws 50% of its fees from the corporate segment, which are
largely driven by loan approvals and syndication fees. With the
slowdown in investment activity and fresh approvals, we expect fee
growth to moderate further in 2Q12.
Asset quality likely to deteriorate going forward
While the bank expects credit costs to remain at 0.8% levels in FY12,
restructured asset levels for ICICI Bank are expected to start rising
from 2Q12 on account of its microfinance, telecom and power sector
exposures. Post the sharp increase in the bank’s exposure to sectors
such as real estate and infrastructure, given the headwinds being
faced by most of these highly leveraged corporate segments, we
expect negative news flow on these corporates/ restructurings to
weigh on the stock performance.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● We expect the adverse shift in the macro environment to start
reflecting in ICICI profitabiltiy from the upcoming 2Q results as
loan and fee growth decelerates and asset quality deteriorates.
● Even as domestic corporate segment loan growth is likely to
remain at ~20% on the disbursements to infra projects, with rise in
rates, its retail disbursements have likely slowed. Lack of fresh
approvals and syndication activity will impact fee growth, which
we expect to start lagging asset growth, resulting in ROA
moderation.
● Credit costs that had moved up to 80 bp in 1Q (70 bp in 4Q11) are
likely to remain moderate. However, restructured asset levels for
the bank are expected to start rising from 2Q on account of its
microfinance, telecom and power sector exposures.
● While stock valuations have moderated to 1.7x FY12E book, with
stress assets increasing and ROAs under pressure, re-rating is
unlikely. Retain NEUTRAL and lowering target price to Rs934
(from Rs1,065) at 1.7x FY13E BV
Macro-headwinds are visible
The rise in interest rates and slowdown in the pace of economic
growth will likely manifest in a deceleration in loan growth, a
compression in NIMs and deterioration in asset quality. The bank
expects FY12 loan growth to be in line with system growth at ~18%
levels (versus 18% levels in FY11), mainly driven by the infrastructure,
project finance and mortgage loans. While the bank has earlier
international loan book growth guidance of 15-20% and expansion in
international NIMs, given the recent increase in CDS spreads
(currently ICICI Bank’s CDS spreads are at LIBOR + 445 bp), these
are likely to be difficult to achieve. Even though near term international
loan growth shall be aided by the recent rupee depreciation, this may
come under pressure in the medium term. The NIMs that had dropped
10 bp in 1Q are likely to remain under pressure even in 2Q as deposit
cost re-pricing will continue. Also, given the sharp rise in the term
deposit rates, CASA growth shall be under pressure and CASA share
is likely to come down from the 40% levels in 1Q12.
Fees to start lagging asset growth
ICICI draws 50% of its fees from the corporate segment, which are
largely driven by loan approvals and syndication fees. With the
slowdown in investment activity and fresh approvals, we expect fee
growth to moderate further in 2Q12.
Asset quality likely to deteriorate going forward
While the bank expects credit costs to remain at 0.8% levels in FY12,
restructured asset levels for ICICI Bank are expected to start rising
from 2Q12 on account of its microfinance, telecom and power sector
exposures. Post the sharp increase in the bank’s exposure to sectors
such as real estate and infrastructure, given the headwinds being
faced by most of these highly leveraged corporate segments, we
expect negative news flow on these corporates/ restructurings to
weigh on the stock performance.
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