ICICI Bank, Strong core performance continues :: Centrum

Strong core performance continues
ICICI Bank’s Q3FY13 results revealed continuity in strong core performance
and consistent delivery of 30% bottomline growth – a result of sustained
NIMs and contained credit cost led by stable asset quality (GNPA &
restructured assets). We remain Buyers into the stock with price objective of
Rs1,350.
Global NIM inches up to 3.1%: NII grew by a strong 29% YoY to Rs35bn led
by 7bps sequential expansion in NIM and a healthy credit growth (16.5% YoY
and 4.2% QoQ). Notably, domestic NIM expanded by around 5bps QoQ to
3.47% as easing in cost of funds helped offset lower yields on investment
book. Excess liquidity continued to suppress international NIM, though
management expects normalisation (to 1.4%) in forthcoming quarters.
Loan growth healthy at 16.5%: Domestic loan growth continued to gain
traction and stood at 21% YoY during Q3FY13 though weaker overseas loan
growth (6% YoY) contained overall loan growth at 16.5% YoY. The domestic
loan book growth was primarily driven by corporate (27% YoY) and SME (24%
YoY). Meanwhile, retail book picked up pace further (17% YoY) despite
intensifying competition in key segments. Corporate working capital demand,
disbursements from past project finance sanctions and retail segment should
continue to drive a healthy loan growth in FY14 as well.

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GNPA, restructured assets stable QoQ: Asset quality matrices continued to
remain healthy with 1) GNPA coming off marginally - 3% & 23bps QoQ on
absolute and relative basis 2) PCR largely stable at 78% 3) Slippage rate
normalizing to around 1% and 4) credit costs contained at 55 bps. Meanwhile,
the restructured portfolio was stable sequentially at 1.5% of loans. The bank
holds a restructuring pipeline of around Rs10bn which could push the ratio to
1.7% by the end of FY13, though this would still be comfortable vs many peers.
Core fee income performance remains weak: Non-interest income grew by
decent 17% YoY during the quarter led by substantial treasury gains.
Meanwhile core fee income (just 4% YoY) continued to experience weakness
led by muted revenue stream from corporate lending related fee income
streams though forex and TPD streams continued to fare well. The overall core
fee income should gain traction gradually with anticipated pick up in
investment activity over FY14.
Maintain Buy: Not withstanding the challenges on loan growth, we draw
significant comfort on asset quality front led by a limited restructured
portfolio; strong PCR and relatively conservative loan book build up in the
past 2 years. Contained credit costs and improved profitability should help
the bank deliver RoA of ~1.6% for FY13 & FY14. Moreover, during the past few
quarters the bank showed consistent delivery (30% PAT growth) on the back
of disciplined approach towards growth, profitability and quality. At the
current price, the stock trades at 13.8x FY14E EPS and