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Recovery is slow but on track. ICICI Bank reported 14% yoy earnings growth led by similar growth in operating profits. Elevated loan-loss provisions impacted earnings as fresh impairments were high at 4.5% of loans. Next quarter outlook on fresh impairments is likely to be at similar levels but a recovery in the economy should provide greater comfort over the near term. Our broad call retaining our positive view is on the steady shift in business to low-risk businesses like retail, strong CASA franchise and improving return ratios. Maintain BUY rating with TP at `410 (from `400 earlier).
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Weakness in impairment ratios takes precedence over others ICICI Bank reported 14% yoy growth in earnings on the back of 12% revenue growth and slower operating expenses growth (10% yoy). Provisions were higher (41% yoy) primarily for higher impairments. Slippages were at 2.5% while fresh restructuring was at 1.9% of loans. Management outlook on fresh impairments for 4QFY15 remains closer to current levels, which is weak but reflects the underlying economic environment. Non-interest income has greater support from treasury, dividends and exchange-related gains. On the positive side, loan growth was slow at 13% yoy but we are seeing a steady shift to retail (26% yoy), NIM has held well at 3.5%, CASA growth is impressive (14% yoy) and cost-income ratio is under control (38%). ICICI Bank still remains our preferred idea in this space; retail remains the key focus area Despite the strong outperformance in recent years, we still believe that the scope for appreciation in stock price is still high. It remains our preferred idea among banks. We still see an upside of ~15% from current levels. The bank has been steadily building business with lower focus on share but greater emphasis on risk-adjusted returns, which is led by a foundation that is built on retail assets, liabilities as well as fee income. We expect the share of loans in retail to increase to ~50% in the next few years while the contribution of retail in fees is already at 60%. While the bank has done a good job on the CASA front, we like the lower dependence on wholesale deposits (25% currently as compared to 50% in FY2009). Keep our faith; maintain BUY We maintain our BUY rating and value the bank at `410 (`400 earlier) factoring earnings revision. We value (1) the bank at 2.4X book (adjusted for NPLs and subsidiaries) and 15X EPS for RoEs in the range of 15-16% and 15% CAGR in earnings in the short term, (2) international subsidiaries at 0.7X book (low growth opportunity and subdued RoE performance) and (3) life insurance (stake of ICICI Bank) at `38/share. We would use the recent weakness in the stock price as an attractive entry point. Valuations are expensive compared to its own history but long-term RoEs can still expand, which could help explain higher multiples. Our medium-term concern is that the risk of disappointment on impairment ratios is likely to remain high and we factor credit costs at ~80-90 bps, which would lead to subdued earnings for FY2015-17E.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily02022015ka.pdf
Recovery is slow but on track. ICICI Bank reported 14% yoy earnings growth led by similar growth in operating profits. Elevated loan-loss provisions impacted earnings as fresh impairments were high at 4.5% of loans. Next quarter outlook on fresh impairments is likely to be at similar levels but a recovery in the economy should provide greater comfort over the near term. Our broad call retaining our positive view is on the steady shift in business to low-risk businesses like retail, strong CASA franchise and improving return ratios. Maintain BUY rating with TP at `410 (from `400 earlier).
�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��
��
Weakness in impairment ratios takes precedence over others ICICI Bank reported 14% yoy growth in earnings on the back of 12% revenue growth and slower operating expenses growth (10% yoy). Provisions were higher (41% yoy) primarily for higher impairments. Slippages were at 2.5% while fresh restructuring was at 1.9% of loans. Management outlook on fresh impairments for 4QFY15 remains closer to current levels, which is weak but reflects the underlying economic environment. Non-interest income has greater support from treasury, dividends and exchange-related gains. On the positive side, loan growth was slow at 13% yoy but we are seeing a steady shift to retail (26% yoy), NIM has held well at 3.5%, CASA growth is impressive (14% yoy) and cost-income ratio is under control (38%). ICICI Bank still remains our preferred idea in this space; retail remains the key focus area Despite the strong outperformance in recent years, we still believe that the scope for appreciation in stock price is still high. It remains our preferred idea among banks. We still see an upside of ~15% from current levels. The bank has been steadily building business with lower focus on share but greater emphasis on risk-adjusted returns, which is led by a foundation that is built on retail assets, liabilities as well as fee income. We expect the share of loans in retail to increase to ~50% in the next few years while the contribution of retail in fees is already at 60%. While the bank has done a good job on the CASA front, we like the lower dependence on wholesale deposits (25% currently as compared to 50% in FY2009). Keep our faith; maintain BUY We maintain our BUY rating and value the bank at `410 (`400 earlier) factoring earnings revision. We value (1) the bank at 2.4X book (adjusted for NPLs and subsidiaries) and 15X EPS for RoEs in the range of 15-16% and 15% CAGR in earnings in the short term, (2) international subsidiaries at 0.7X book (low growth opportunity and subdued RoE performance) and (3) life insurance (stake of ICICI Bank) at `38/share. We would use the recent weakness in the stock price as an attractive entry point. Valuations are expensive compared to its own history but long-term RoEs can still expand, which could help explain higher multiples. Our medium-term concern is that the risk of disappointment on impairment ratios is likely to remain high and we factor credit costs at ~80-90 bps, which would lead to subdued earnings for FY2015-17E.
LINK
http://www.kotaksecurities.com/pdf/indiadaily/indiadaily02022015ka.pdf
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