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ICICI Bank
So far, so good
In 1QFY12, a largely stable delinquency ratio (despite including MFI slippages)
was a key positive. On the back of management guidance, we cut our core
earnings forecasts, which is partly offset by a lower provision for bad loans. The
key challenge is to keep credit costs under check. Maintain Buy.
1QFY12: Stable margins, lower slippages
Reported net interest margin was 2.6% in 1QFY12 (down 10bp qoq), partly driven by the
impact of an increase in the savings deposit interest rate and subdued margins in the
international business. Fee income posted modest 12% yoy growth, partly driven by lower
retail fees (including third-party product distribution), and corporate fee growth moderated on
the back of a slowdown in the sanctions pipeline. Management expects 18-20% yoy loan
growth in FY12 and a 2.6% NIM (stable yoy), partly driven by improvement in margins from
the international business. Slippages at Rs7.5bn were about 40bp of loans (on a one-yearlag basis), of which about Rs2bn was from the microfinance (MFI) portfolio. This compares
well with slippages of about 140bp in FY11. The bankís MFI portfolio is about Rs10bn (0.5%
of loan book). Restructured loans remained stable at about Rs20bn (0.9% of loan book).
ICICI Prudential Life: stable margin, but weak volumes
New business premium contracted 41.4% yoy as volumes continued to reset in response to
new ULIP (unit linked insurance plan) pricing guidelines (see Table 2). We expect growth to
remain in the negative zone in 2QFY12 also, and to show recovery in 2HFY12. Renewal
premium contracted 9% yoy to Rs18bn; we expect the renewal premium to remain weak as
the single premium exposure increased after 3QFY11 (32% in 4QFY11). Management plans
to reduce the single premium exposure; we believe it will continue to form 25% of new
business premium (27.6% in FY11). New business margins improved 70bp qoq to 16%
(down 300bp yoy). The expense ratio increased sequentially 5.6% to 18.3%, due to lower
premium written, which is a seasonal phenomenon. Assets under management declined 1%
qoq on account of a mark-to-market hit, while inflows were moderate.
We cut our earnings forecasts; maintain Buy
We lower our FY12-13 earnings forecasts about 4-6%, led by a cut in core earnings but
partly offset by a lower provision for bad loans. This drives our SOTP-based TP to Rs1261
from Rs1278. The change in TP is largely due to the cut in earnings but is offset by a roll
forward of valuations.
: ICICI Bank ñ discounted EVAô
Key Assumptions
NOPAT Terminal Growth Rate (%) 3.0
Terminal NOPAT (Rsm) 794,759
Terminal EVAô (Rsm) 209,147
Terminal Return on NTA Employed (%) 19.0
Cost of Equity (%) 14.0
Terminal Return Spread (%) 5.0
Opening NTA employed (Rsm) 420,083
Adjusted NTA employed (Rsm) 500,117
Terminal Value (Rsm)
Terminal value 1,901,337
NPV of Terminal Value 360,997
Warranted Equity Value (Rsm)
Adjusted Opening NTA employed 500,117
NPV of EVAô 189,704
NPV of Terminal Value 360,997
Equity Value 1,050,818
No. Shares (millions) 1,154.7
Warranted Equity Value Per Share (Rs) 910
Add: Premium for relatively higher tier-I ratio (%) 20%
Fair value 1,092
Source: RBS forecasts
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ICICI Bank
So far, so good
In 1QFY12, a largely stable delinquency ratio (despite including MFI slippages)
was a key positive. On the back of management guidance, we cut our core
earnings forecasts, which is partly offset by a lower provision for bad loans. The
key challenge is to keep credit costs under check. Maintain Buy.
1QFY12: Stable margins, lower slippages
Reported net interest margin was 2.6% in 1QFY12 (down 10bp qoq), partly driven by the
impact of an increase in the savings deposit interest rate and subdued margins in the
international business. Fee income posted modest 12% yoy growth, partly driven by lower
retail fees (including third-party product distribution), and corporate fee growth moderated on
the back of a slowdown in the sanctions pipeline. Management expects 18-20% yoy loan
growth in FY12 and a 2.6% NIM (stable yoy), partly driven by improvement in margins from
the international business. Slippages at Rs7.5bn were about 40bp of loans (on a one-yearlag basis), of which about Rs2bn was from the microfinance (MFI) portfolio. This compares
well with slippages of about 140bp in FY11. The bankís MFI portfolio is about Rs10bn (0.5%
of loan book). Restructured loans remained stable at about Rs20bn (0.9% of loan book).
ICICI Prudential Life: stable margin, but weak volumes
New business premium contracted 41.4% yoy as volumes continued to reset in response to
new ULIP (unit linked insurance plan) pricing guidelines (see Table 2). We expect growth to
remain in the negative zone in 2QFY12 also, and to show recovery in 2HFY12. Renewal
premium contracted 9% yoy to Rs18bn; we expect the renewal premium to remain weak as
the single premium exposure increased after 3QFY11 (32% in 4QFY11). Management plans
to reduce the single premium exposure; we believe it will continue to form 25% of new
business premium (27.6% in FY11). New business margins improved 70bp qoq to 16%
(down 300bp yoy). The expense ratio increased sequentially 5.6% to 18.3%, due to lower
premium written, which is a seasonal phenomenon. Assets under management declined 1%
qoq on account of a mark-to-market hit, while inflows were moderate.
We cut our earnings forecasts; maintain Buy
We lower our FY12-13 earnings forecasts about 4-6%, led by a cut in core earnings but
partly offset by a lower provision for bad loans. This drives our SOTP-based TP to Rs1261
from Rs1278. The change in TP is largely due to the cut in earnings but is offset by a roll
forward of valuations.
: ICICI Bank ñ discounted EVAô
Key Assumptions
NOPAT Terminal Growth Rate (%) 3.0
Terminal NOPAT (Rsm) 794,759
Terminal EVAô (Rsm) 209,147
Terminal Return on NTA Employed (%) 19.0
Cost of Equity (%) 14.0
Terminal Return Spread (%) 5.0
Opening NTA employed (Rsm) 420,083
Adjusted NTA employed (Rsm) 500,117
Terminal Value (Rsm)
Terminal value 1,901,337
NPV of Terminal Value 360,997
Warranted Equity Value (Rsm)
Adjusted Opening NTA employed 500,117
NPV of EVAô 189,704
NPV of Terminal Value 360,997
Equity Value 1,050,818
No. Shares (millions) 1,154.7
Warranted Equity Value Per Share (Rs) 910
Add: Premium for relatively higher tier-I ratio (%) 20%
Fair value 1,092
Source: RBS forecasts
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