Mixed bag ICICI Bank: HDFC Securities

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Mixed bag ICICI Bank’s (ICICBC) results were a mixed bag. Key negatives were (a) sharp rise in gross impaired additions of Rs 40bn i.e. 4.3% ann. (b) moderate fee income growth and weak commentary for 4Q. On the positive front (a) despite higher stress, NIMs improved (b) granularity further increased with Retail loans contributing incrementally ~70% of loans & CASA proportion improving and (c) core & net earnings were inline with estimates supported by higher dividend income & repatriation gain. Led by disappointment in asset quality and further weak commentary for 4Q, we have revised our estimates downwards by ~2% for FY16-17E. However, with the improving granularity, strong liability franchise and higher CRAR, ICICIBC is well positioned to ride the gradual improvement in the economy. Reforms in insurance & stressed infra sector would further lead to rerating. Maintain BUY with a revised SOTP of Rs 394/sh.  Bank’s gross impaired additions (slippages: Rs 23bn, 2.5% ann. & restructuring: Rs 17bn) of Rs 40bn (4.3% ann.) were a big negative surprise. Nearly 34% of the slippages were from the restructured pool. Despite higher recoveries (Rs 5.1bn), GNPA increased 13% QoQ to Rs 131bn (3.4%). PCR further declined ~230bps QoQ to ~63.5%, leading to NNPA rise of ~21% QoQ. Restructured book jumped 9% QoQ to Rs 120.5bn (3.2%). Mgmt hinted at a further rise in gross impaired additions with a restructuring pipeline of Rs 23bn & continued slippages from the restructured book. Given the exposure to stressed sectors and gradual macro recovery, we are building slippage of 1.5% over FY15-17E vs. 1.34% in FY14.  NII (Rs 48.1bn) grew 13%, led by 13% loan growth and 14bps NIM improvement (3.46%). Dividend income (Rs 3.5bn) and profit repatriation exchange gain (Rs 1.9bn) along with higher treasury gains (Rs 4.4bn) led to a jump in non-interest income (+13% QoQ). Provisions continue to increase (+41/15% YoY/QoQ) to Rs 9.8bn (106bps ann.), incl. provisions (Rs 480mn) towards borrowers with unhedged FX exposure.  Retail loans (+25% YoY) contributed ~70% to incremental loans and formed ~55% of Domestic book. ICICIBC continued to adopt a cautious stance on corp. loans (+4% YoY). We have factored loan CAGR of 16% over FY15-17E. CASA (%) improved ~40bps QoQ to 44% & avg. CASA was stable at 39.3%.

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