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ICICI Bank
Overweight
ICBK.BO, ICICIBC IN
3Q11: Stability restored, now stepping on the gas
• ICICI reported a 4% beat to our 3Q11 forecasts through accelerating
loan growth and better credit costs. We see the bank’s process of
consolidation as over and growth is picking up. The multi-year process
of improving ROAs and the overall quality is very much on track –
ICICI remains our top pick.
• Loan growth returns. 6.4% q/q loan growth is a clear signal that
business is back. Management continues to target 18% for FY11 and
20% for FY12, but we think that’s conservative if the economy remains
robust. We raise our FY12 growth target to 22% (from 18%) as we turn
more positive on the international book.
• Credit costs down sharply. Incremental delinquency was near zero, and
credit costs are down to 1%, down 35bp q/q, at the long-term cross-cycle
levels, according to management. We think it could swing lower if the
cycle stays strong, given the experience of other retail lenders in the
recent past. This is a potential source of surprise, even from here.
• Margin outlook weak. NIMs were flat q/q, and management warned of
pressures - we believe the divergence with the state banks is due to the
high share of wholesale deposits and delayed loan repricing.
• Changing forecasts, retain as top pick. We adjust our earnings
estimates up 1-3% for FY11-13 to factor in higher loan growth, lower
credit costs, and marginally lower margins.We retain ICICI as our top
pick as we believe that the stock could re-rate on the back of improving
asset quality as well as the return of loan growth. We think valuations
are relatively undemanding at 14.5x FY12E EPS with EPS CAGR of
26% through to FY13E.
Loan growth coming back
Loan growth has accelerated in this quarter to 6.4% q/q primarily driven by large
corporate and growth in the international book. Management is very sanguine about
domestic loan growth, with large corporate loan book growing ~17% q/q
contributing ~60% of the incremental credit in the quarter. Retail disbursements have
marginally come off from last quarter, given lower mortgage disbursements.
Improving margins and the recent US$1bn bond issue should help them fund the
growth in the international book. Management has indicated their loan growth target
at 18% for FY11E and 20% for FY12E but we believe loan growth could surprise on
the upside.
Margins stable
Margins were stable in 3Q11 at 2.6% with domestic margins at 3.0% and
international margins at 85bps. Average CASA improved in 3Q11 by 100bps to
~40% in 3Q11. Management expects some margin pressure over the next two
quarters as higher cost of funds impact margins. We expect marginal moderation in
margins over the next few quarters but expect gradual improvement in international
margins and improved liability franchise to aid margin expansion in the medium
term.
Credit costs continue to fall
Incremental delinquency was near zero, and credit costs are down to 1%, down 40bp
q/q, at the long-term cross-cycle levels, according to management. Though
management believes normalized credit costs would be ~100bps over the medium
term, low incremental deliquencies and high provision coverage (72% currently)
should lead to <100bps credit costs in FY1E.
Other highlights
Operating expenses: Opex growth was marginally higher than estimates as ICICI
created some bonus provision in this quarter. Employee expense growth of ~22% q/q
was also impacted due to full impact of BOR employee expenses from this quarter.
Tax rate: Tax rate continues to remain low at 23.5%, given one-off tax benefits from
the BOR acquisition. Management has guided to ~23.5% tax rate for FY11 and ~26-
27% for FY12.
BOR integration: All BOR branches have been rebranded and complete system and
IT migration is expected by Mar-12.
Adjust Earnings Estimates
We adjust our earnings to factor in higher loan growth, lower credit costs, and
marginally lower margins in FY12. Our earnings estimates for FY11-13E are revised
up by 1-3%. FY12E numbers are flat, as we expect some moderation in margins in
1HCY12 and would net off the positive earnings impact from higher loan growth.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
ICICI Bank
Overweight
ICBK.BO, ICICIBC IN
3Q11: Stability restored, now stepping on the gas
• ICICI reported a 4% beat to our 3Q11 forecasts through accelerating
loan growth and better credit costs. We see the bank’s process of
consolidation as over and growth is picking up. The multi-year process
of improving ROAs and the overall quality is very much on track –
ICICI remains our top pick.
• Loan growth returns. 6.4% q/q loan growth is a clear signal that
business is back. Management continues to target 18% for FY11 and
20% for FY12, but we think that’s conservative if the economy remains
robust. We raise our FY12 growth target to 22% (from 18%) as we turn
more positive on the international book.
• Credit costs down sharply. Incremental delinquency was near zero, and
credit costs are down to 1%, down 35bp q/q, at the long-term cross-cycle
levels, according to management. We think it could swing lower if the
cycle stays strong, given the experience of other retail lenders in the
recent past. This is a potential source of surprise, even from here.
• Margin outlook weak. NIMs were flat q/q, and management warned of
pressures - we believe the divergence with the state banks is due to the
high share of wholesale deposits and delayed loan repricing.
• Changing forecasts, retain as top pick. We adjust our earnings
estimates up 1-3% for FY11-13 to factor in higher loan growth, lower
credit costs, and marginally lower margins.We retain ICICI as our top
pick as we believe that the stock could re-rate on the back of improving
asset quality as well as the return of loan growth. We think valuations
are relatively undemanding at 14.5x FY12E EPS with EPS CAGR of
26% through to FY13E.
Loan growth coming back
Loan growth has accelerated in this quarter to 6.4% q/q primarily driven by large
corporate and growth in the international book. Management is very sanguine about
domestic loan growth, with large corporate loan book growing ~17% q/q
contributing ~60% of the incremental credit in the quarter. Retail disbursements have
marginally come off from last quarter, given lower mortgage disbursements.
Improving margins and the recent US$1bn bond issue should help them fund the
growth in the international book. Management has indicated their loan growth target
at 18% for FY11E and 20% for FY12E but we believe loan growth could surprise on
the upside.
Margins stable
Margins were stable in 3Q11 at 2.6% with domestic margins at 3.0% and
international margins at 85bps. Average CASA improved in 3Q11 by 100bps to
~40% in 3Q11. Management expects some margin pressure over the next two
quarters as higher cost of funds impact margins. We expect marginal moderation in
margins over the next few quarters but expect gradual improvement in international
margins and improved liability franchise to aid margin expansion in the medium
term.
Credit costs continue to fall
Incremental delinquency was near zero, and credit costs are down to 1%, down 40bp
q/q, at the long-term cross-cycle levels, according to management. Though
management believes normalized credit costs would be ~100bps over the medium
term, low incremental deliquencies and high provision coverage (72% currently)
should lead to <100bps credit costs in FY1E.
Other highlights
Operating expenses: Opex growth was marginally higher than estimates as ICICI
created some bonus provision in this quarter. Employee expense growth of ~22% q/q
was also impacted due to full impact of BOR employee expenses from this quarter.
Tax rate: Tax rate continues to remain low at 23.5%, given one-off tax benefits from
the BOR acquisition. Management has guided to ~23.5% tax rate for FY11 and ~26-
27% for FY12.
BOR integration: All BOR branches have been rebranded and complete system and
IT migration is expected by Mar-12.
Adjust Earnings Estimates
We adjust our earnings to factor in higher loan growth, lower credit costs, and
marginally lower margins in FY12. Our earnings estimates for FY11-13E are revised
up by 1-3%. FY12E numbers are flat, as we expect some moderation in margins in
1HCY12 and would net off the positive earnings impact from higher loan growth.
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