ICICI Bank - Steady Performance; Result Update Q2FY15 :: Edelweiss

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ICICI Bank’s (ICICI) Q2FY15 PAT at INR27bn (up 15% YoY) came marginally below our estimate due to higher provisions. Key highlights were: 1) operating profitably registered healthy growth on controlled opex (cost-income ratio down 200bps QoQ to 36.5%); 2) core fee income remains muted owing to slower corporate fee traction – the bank expects gradual improvement in same; 3) corporate growth remains subdued unlike other private peers, which saw traction in Q2FY15; 4) slippages were higher due to NPLs from restructured book (contributed ~50%) – we see this as critical  for the bank to maintain its incremental stress guidance. The bank’s well-capitalised position (Tier I: 12%), stable funding franchise and stressed assets at ~4% place it in a sweet spot to capitalise on anticipated macro recovery. Further leg up may come from re-rating of the bank’s capital market linked businesses, viz., life insurance and asset management.

Stress asset formation within guidance

Slippages stood higher at INR16.7bn, wiith over 50% slippages coming from restructured book (predominantly one account). However, curtailed restructuring (INR8.5bn, further pipeline of INR18bn) contained overall stress. The bank reiterated that FY14 was a peak year for stress creation (excluding slippages form restrucred book) and it will be lower in FY15. Management expects credit cost to be contained at 90-95bps (including unhedged forex exposure).

Core profitability supported by controlled opex

NII grew 15% YoY on improving NIMs yielding benefits of strong liability franchise, benefiting from lower wholesale dependence and healthy CASA base. This, coupled with controlled opex (albiet up 16% YoY due to lower base), aided core profitabliity. We expect stable/improving NIMs and benefits of operating leverage (given efficient use of tecnology) to lend further filip to retun ratios.

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https://www.edelweiss.in/research/ICICI-Bank--Steady-Performance;-Result-Update-Q2FY15/27409.html