ICICI Bank (ICICIBC IN, INR 827, Buy)
Our analysis of ICICI Bank’s (ICICI) FY12 annual report throws up following interesting insights with respect to increased PSL requirement, retail segment profitability, higher dividend income triggers, outstanding restructured pool disclosure etc. We maintain 17% CAGR in earnings over FY12-14E, expecting core ROA/RoE to come in at 1.7%/15%. The stock trades at attractive valuations of 1.3x FY13E core book. Maintain ‘BUY’.
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· PSL requirement set to increase – To transition fully to priority sector targets based on adjusted net bank credit (ANBC) against residual bank credit (excluding erstwhile ICICI advances as of FY02 estimated at ~NR350bn) FY13 onwards, RBI had set an interim target of 38.5% of ANBC in FY12 expected to increase to 40% by FY13. Similarly, for weaker section and agri advances, transitory target was set at 6.7% and 14.5% respectively, to inch up to 10% and 18% in FY13. Higher requirement will call for incremental deployment of INR120-130bn towards low yielding priority sector targets in FY13. Management’s guidance of 2.9% NIMs for FY13 (2.73% in FY12) is after factoring in higher PSL requirement.
· Retail segment’s profitability has turned into black in FY12 - earnings of INR5.5bn (loss of INR5.1bn in FY11). The kicker has been much lower credit cost at 20bps (INR1.88bn) compared to 160bps (INR13.8bn) in FY11. Operating profit in retail banking declined 15% in FY12 due to 24% rise in opex (added 223 branches and 2,900 ATMs in FY12). In wholesale segment, credit cost rose to ~75bps (from 60bps in FY11) due to higher restructuring and sacrifice of ~10% on the same.
· Restructuring of INR38bn during FY12 including INR25bn under CDR scheme. This is over and above restructuring of INR57bn/INR14.3bn in FY10/FY11. Outstanding restructured pool, however, stood at INR47bn as it upgrades accounts which have exhibited satisfactory performance under restructured terms for one year.
· Higher dividend income (11% of profits) was also triggered by dividend from Eurasia and Primary Dealership business besides ICICI Pru Life and ICICI Bank UK.
· Reclassification of CASA across maturity buckets led to proportion of >3 years deposits being higher at 25% (against < 4% historically).
· Higher bancassurance commission (up 60% in FY12) from life insurance products.
· Foreign currency translation reserves of INR9.1bn (INR9/share) included in NW.
The report also includes ICICI’s overseas banking subsidiaries’ detailed analysis.
Regards,
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