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UBS Investment Research
ICICI Bank
A good quarter
„ Result exceeds UBS and Street expectation
Net profit of Rs14.4bn (up 30% y/y, 16% q/q) beat expectations due to lower loan
loss provisions (LLP). NII of Rs23.1bn (up 12%y/y, 5%q/q) was driven by flat
sequential NIM at 2.6% and 15% y/y loan growth. Corporate loans supported loans
growth while retail book stayed flat.
„ Improvement in key business parameters
1) CASA remained stable at 44%. 2) Asset quality remained stable during the
quarter with zero net addition. Provision coverage improved to 72% from 69% in
Q2. 3) Domestic credit grew 7.3% q/q driven by strong credit growth. 4) Cost to
income ratio sequentially went up marginally to 42.3% due to bonus payouts
during the quarter, 5) Life insurance subs reported Rs5.2 bn accounting profit for
9mFy11.
„ Stable core fee income, falling LLP
Core fee income grew at 14%y/y, 2%q/q. Credit cost declined 54% y/y, 28% q/q to
1%. We believe margins would be under pressure and likely get capped at 2.6% in
the near term due to rising cost of funds. We expect credit growth of 18%/22% in
FY11/12. We expect credit cost to fall further in FY12 to 70 bps.
„ Valuation: maintain Buy, price target Rs1,400
We increase FY11 earnings by 2% while cutting FY12/FY13 earning by 4%/4% to
factor in lower margins and higher operating costs. We believe this is more than
factored in the current price. Maintain Buy rating and price target of Rs1,400
(based on sum of the part method).
Subsidiaries performance review
The consolidated net profit stood at Rs 20.4bn up 78% y/y, 46%q/q. The strong
performance primarily came from the Life insurance business where the
Insurance regulator has recently allowed it to publish quarterly surplus from
non-participating business instead of annual.
The subsidiaries reported positive earning performance during the quarter.
ICICI Bank UK reported net profit of $11mn (up 30%q/q). The asset book
shrunk 3% q/q during the quarter to $7bn. Loan book represents 57% of the
assets and India Linked Investments were at $287mn down 36%y/y. Retail
deposit represents 75% of total deposits which stood at $4.6bn. The subsidiaries
CAR improved 290bp q/q to 21.2%
ICICI Bank Canada reported 10%y/y net profit growth to CAD8.3mn. Asset
book fell 19%y/y and 6%y/y to CAD4.7bn primarily due to run down in the loan
book. Loan book fell 9% sequentially to CAD3.1bn. Deposit book stands at
CAD2.8bn with demand deposit representing 15% of the book. The subsidiaries
CAR stood at 26.1% vs 22.9% in Q2.
ICICI Life reported negative APE growth of 62%y/y to Rs5.7bn primarily due
to adverse policy changes in ULIP vertical effective September 2010. NBAP
margin remained flat sequentially at 19%. Company reported expense ratio
stood at 8.9% for 9mFY11. ICICI Prulife made net profit of Rs6.1bn (up
Rs150mn in Q2 and Rs70mn in Q3FY10) for the quarter. The increase came
from transfer of surplus in the non-participating policyholders' funds to the tune
of Rs5.2bn. AUM reported growth of 24%y/y and 1%q/q to Rs663bn.
Q ICICI Bank
ICICI Bank is the largest private sector bank and the second largest bank in
India. It has an asset base of Rs3.66trn. The bank had a network of 1,520
branches at the end of October 2009.
Q Statement of Risk
We believe a sustained economic slowdown could impact the banking and
finance sector including ICICI Bank on several fronts: lead to a slowdown in
credit, increase NPL risk, impact fee income, and exert pressure on NIM
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
ICICI Bank
A good quarter
„ Result exceeds UBS and Street expectation
Net profit of Rs14.4bn (up 30% y/y, 16% q/q) beat expectations due to lower loan
loss provisions (LLP). NII of Rs23.1bn (up 12%y/y, 5%q/q) was driven by flat
sequential NIM at 2.6% and 15% y/y loan growth. Corporate loans supported loans
growth while retail book stayed flat.
„ Improvement in key business parameters
1) CASA remained stable at 44%. 2) Asset quality remained stable during the
quarter with zero net addition. Provision coverage improved to 72% from 69% in
Q2. 3) Domestic credit grew 7.3% q/q driven by strong credit growth. 4) Cost to
income ratio sequentially went up marginally to 42.3% due to bonus payouts
during the quarter, 5) Life insurance subs reported Rs5.2 bn accounting profit for
9mFy11.
„ Stable core fee income, falling LLP
Core fee income grew at 14%y/y, 2%q/q. Credit cost declined 54% y/y, 28% q/q to
1%. We believe margins would be under pressure and likely get capped at 2.6% in
the near term due to rising cost of funds. We expect credit growth of 18%/22% in
FY11/12. We expect credit cost to fall further in FY12 to 70 bps.
„ Valuation: maintain Buy, price target Rs1,400
We increase FY11 earnings by 2% while cutting FY12/FY13 earning by 4%/4% to
factor in lower margins and higher operating costs. We believe this is more than
factored in the current price. Maintain Buy rating and price target of Rs1,400
(based on sum of the part method).
Subsidiaries performance review
The consolidated net profit stood at Rs 20.4bn up 78% y/y, 46%q/q. The strong
performance primarily came from the Life insurance business where the
Insurance regulator has recently allowed it to publish quarterly surplus from
non-participating business instead of annual.
The subsidiaries reported positive earning performance during the quarter.
ICICI Bank UK reported net profit of $11mn (up 30%q/q). The asset book
shrunk 3% q/q during the quarter to $7bn. Loan book represents 57% of the
assets and India Linked Investments were at $287mn down 36%y/y. Retail
deposit represents 75% of total deposits which stood at $4.6bn. The subsidiaries
CAR improved 290bp q/q to 21.2%
ICICI Bank Canada reported 10%y/y net profit growth to CAD8.3mn. Asset
book fell 19%y/y and 6%y/y to CAD4.7bn primarily due to run down in the loan
book. Loan book fell 9% sequentially to CAD3.1bn. Deposit book stands at
CAD2.8bn with demand deposit representing 15% of the book. The subsidiaries
CAR stood at 26.1% vs 22.9% in Q2.
ICICI Life reported negative APE growth of 62%y/y to Rs5.7bn primarily due
to adverse policy changes in ULIP vertical effective September 2010. NBAP
margin remained flat sequentially at 19%. Company reported expense ratio
stood at 8.9% for 9mFY11. ICICI Prulife made net profit of Rs6.1bn (up
Rs150mn in Q2 and Rs70mn in Q3FY10) for the quarter. The increase came
from transfer of surplus in the non-participating policyholders' funds to the tune
of Rs5.2bn. AUM reported growth of 24%y/y and 1%q/q to Rs663bn.
Q ICICI Bank
ICICI Bank is the largest private sector bank and the second largest bank in
India. It has an asset base of Rs3.66trn. The bank had a network of 1,520
branches at the end of October 2009.
Q Statement of Risk
We believe a sustained economic slowdown could impact the banking and
finance sector including ICICI Bank on several fronts: lead to a slowdown in
credit, increase NPL risk, impact fee income, and exert pressure on NIM
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