Results in line but slowdown to hurt earnings growth
ICICIBC’s Q1FY14 NII came in marginally below estimates but PAT in line
(+25% YoY to Rs 23bn) buoyed by strong trading profits (of Rs 4bn vs. Rs 1bn
in Q4FY13). Advances grew at 3.8% QoQ (12.3% YoY) while NIMs contracted
~6bps QoQ to 3.27%. Asset quality was under pressure with incremental
slippages/restructuring at Rs 11.2bn/Rs 8bn. We believe a poor macro could
hurt credit offtake/asset quality, and therefore trim our FY14/FY15 earnings
estimates and our Mar’14 TP to Rs 1,075 (from Rs 1,225). Maintain HOLD.
Advances growth lower than expected:Overall advances growth moderated to
12.3% YoY (from 14.4% YoY in Mar’13) driven by slower domestic credit growth (at
14% YoY). The overseas book grew by ~8% YoY largely due to INR depreciation. The
retail book grew only by 12.6% YoY, but growth was healthy at 26.6% adjusted for
buyouts. Corporate growth picked up with advances growing by 3.9% QoQ while
the SME segment remained weak. Deposits were up 3.7% QoQ and the domestic
LDR was higher by 80bps QoQ. SA deposits mobilisation wasstrong at 3.7% QoQ
(14% YoY) and the average CASA proportion improved by 90bps QoQ to 39%.
Asset quality slips; credit costs higher: Slippages were higher at Rs 11.2bn (slippage
ratio: 1.6%), while incremental restructuring at Rs 8bn was in line. Gross retail NPLs
shot up to Rs 54.1bn from Rs 41.8bn in Q4FY13. Outstanding netrestructured loans
rose from Rs 53.1bn to Rs 59.1bn. Credit costs were higher than expectations at
82bps; however,the bankmaintained its FY14 credit cost guidance at 75bps.
NIMs decline marginally; fee income sluggish:Domestic NIMs declined by 7bps
QoQ to 3.63%, leading to a 6bps QoQdrop in Q1FY14NIMs even as international
NIMs improved to 1.6%. The uptick in NIMs was due to a dip in the yield on
advances. The management has maintained its guidance for a 10bps NIM expansion
in FY14. Fee income remained muted (+9% YoY). A sharp slowdown in corporate fee
income coupled with negligible growth in other fee avenues hurt fee growth. The
C/I ratio was flat QoQ at 40%.
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ICICIBC’s Q1FY14 NII came in marginally below estimates but PAT in line
(+25% YoY to Rs 23bn) buoyed by strong trading profits (of Rs 4bn vs. Rs 1bn
in Q4FY13). Advances grew at 3.8% QoQ (12.3% YoY) while NIMs contracted
~6bps QoQ to 3.27%. Asset quality was under pressure with incremental
slippages/restructuring at Rs 11.2bn/Rs 8bn. We believe a poor macro could
hurt credit offtake/asset quality, and therefore trim our FY14/FY15 earnings
estimates and our Mar’14 TP to Rs 1,075 (from Rs 1,225). Maintain HOLD.
Advances growth lower than expected:Overall advances growth moderated to
12.3% YoY (from 14.4% YoY in Mar’13) driven by slower domestic credit growth (at
14% YoY). The overseas book grew by ~8% YoY largely due to INR depreciation. The
retail book grew only by 12.6% YoY, but growth was healthy at 26.6% adjusted for
buyouts. Corporate growth picked up with advances growing by 3.9% QoQ while
the SME segment remained weak. Deposits were up 3.7% QoQ and the domestic
LDR was higher by 80bps QoQ. SA deposits mobilisation wasstrong at 3.7% QoQ
(14% YoY) and the average CASA proportion improved by 90bps QoQ to 39%.
Asset quality slips; credit costs higher: Slippages were higher at Rs 11.2bn (slippage
ratio: 1.6%), while incremental restructuring at Rs 8bn was in line. Gross retail NPLs
shot up to Rs 54.1bn from Rs 41.8bn in Q4FY13. Outstanding netrestructured loans
rose from Rs 53.1bn to Rs 59.1bn. Credit costs were higher than expectations at
82bps; however,the bankmaintained its FY14 credit cost guidance at 75bps.
NIMs decline marginally; fee income sluggish:Domestic NIMs declined by 7bps
QoQ to 3.63%, leading to a 6bps QoQdrop in Q1FY14NIMs even as international
NIMs improved to 1.6%. The uptick in NIMs was due to a dip in the yield on
advances. The management has maintained its guidance for a 10bps NIM expansion
in FY14. Fee income remained muted (+9% YoY). A sharp slowdown in corporate fee
income coupled with negligible growth in other fee avenues hurt fee growth. The
C/I ratio was flat QoQ at 40%.
Valuations fair; improvement in growth outlook key for re-rating
ICICIBC is currently trading at 1.4x FY14E BV/11.4x FY14E EPS (after adjusting Rs 213 for
valuation of subsidiaries in FY14). We trim our FY14/FY15 earnings by 2%/3% as we tone
down our growth expectations. We now expect ICICIBC’s earnings CAGR to be 13% over
FY13-FY15E and ROEs to improve only marginally from 14.3% in FY13 to ~15.5% in FY15.
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