ICICI Bank - Buy Q4FY13 Result Update:: Centrum

Strong core performance continues
ICICI Bank’s Q4FY13 results revealed continuity in healthy core performance and bottomline growth – a result of NIM expansion and contained credit cost led by stable asset quality. Positive commentary/guidance: 10bps NIM expansion, 17% loan growth & healthy asset quality. We remain Buyers into the stock with a price objective of Rs1400 (Rs1190/share for core banking based on 1.8x Sep’14E + Rs210/share for subsidiaries).
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Global NIM inches up to 3.3%: NII grew by a strong 22.5% YoY to Rs38bn led by 25bps sequential expansion in NIM and 14.4% credit growth. Notably, domestic NIM expanded by around 23bps QoQ to 3.7% as easing in cost of funds helped more than offset marginally lower blended yields. Excess liquidity continued to suppress international NIM, though management expects NIM to normalise (to 1.4%) in forthcoming quarters. In line, the bank has guided for 10bps expansion in NIM during FY14.
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Loan growth moderates to 14.4%: Domestic loan growth stood healthy at 18% YoY during Q4FY13 while overseas loan growth (5.6% YoY) remained weak and hence contained overall loan growth at 14.4% YoY. The domestic loan book growth was primarily driven by corporate (30% YoY) and retail (11% YoY) – based on revised segment classification. Given the weak credit growth in overseas and retail segments, utilisation of unavailed sanctions in the absence of a new project pipeline represents a major risk to the bank’s ability to grow its loan book (FY14 guidance of 17% growth).

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Restructured assets rise but still manageable: Asset quality matrices continued to remain healthy with 1) GNPA coming off marginally by 1.5% & 10bps QoQ on absolute and relative basis 2) PCR healthy at 77% 3) Slippage rate normalizing to around 1% and 4) credit costs contained at 65 bps. Meanwhile, the restructured portfolio increased by 17% QoQ to 1.8% of loans (post reclassification borrower wise). The bank holds a restructuring pipeline of around Rs6-7bn currently though risks of further increase cannot be ruled out. Overall, we believe that asset quality matrix should remain healthy given the series of actions by CCI and government on the investment cycle (especially infrastructure).
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Weakness in core fee income persists: Non-interest income for the quarter was largely flattish YoY at Rs22bn led by all round weakness (weak fee income and unfavorable base in treasury gains). Core fee income (just 3% YoY) continued to experience weakness led by muted revenue stream from corporate lending related fee income streams. The overall core fee income should gain traction gradually with anticipated pick up in investment activity over FY14.
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Maintain Buy: Not withstanding the challenges on loan growth, we draw significant comfort on the asset quality front led by a limited restructured portfolio; healthy 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 ~1.7% for FY14 & FY15. At the current price, the stock trades at 13.5x FY14E EPS and 1.8x FY14E ABVPS. We maintain Buy with a revised target price of Rs1400 (Rs1190/share for core banking based on 1.8x Sep’14E + Rs210/share for subsidiaries).