ICICI Bank (Annual Report Analysis) : Exposure to large corps an overhang. Maintain BUY:: HDFC Securities

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Exposure to large corps an overhang Key takes from ICICI Bank’s (ICICIBC) FY15 Annual reports are as follows  Exposure to sensitive sectors remains stable : ICICIBC’s exposure to sensitive sectors stood at ~20% vs. 21% in FY14 with a mere 4% growth in Infra exposure (despite growth of 12% in the power sub-segment). However, exposure to Iron & Steel (+17%; 5.5% of loans) & Metals (+34%; 2.3% of loans) & Construction (+19%; 2.5% of loans) saw relatively strong growth. Top 20 Advances increased to 16.6% vs. 15.7%, indicating higher concentration. Subsequently, RWA % Assets inched up to 84% vs. 82% in FY14. Retail loans contributed ~67% of loan growth vs. 51/30% in FY14/13.  Slippages from restructured book rose sharply : Slippages from restructured book (Rs 45bn) jumped to 39% of the opening book & formed 56% of the total slippages and 34% of total impairment. NPLs in sectors like Roads/Ports, Iron & steel, Shipping and Engg saw a sharp rise, while retail & agri NPLs continued to see a steady decline. Concentration risk is visible with top 4 NPLs forming ~41% of GNPLs vs. 17% in FY14.  Margins & CASA : ICICIBC was one of the few banks to improve NIMs (+15bps to 3.5%) despite asset quality issues. The up move was lead by increasing share of domestic loans, stable CASA & 500bps rise in domestic C-D ratio. Domestic NIM improved from 3.7% to 3.9% while overseas NIM was stable at 1.65% vs. 1.7%. SA deposits contributed 53% of deposits growth vs. 34%.  Retail fees & other income avenues provide cushion : Dividend income grew 20% led by higher contribution from I-Sec (Rs 1.9bn; +4.7x), Home finance (Rs 1.6bn; +41%) & ICICI UK (Rs 1.9bn; +22%). Dividend from ICICI Life Insurance was ~40% of total dividends vs. 53% in FY14. Repatriation gains jumped to Rs 7.5bn (6.2% of non interest income & 3.8% of PPOP) vs. Rs 2.2bn in FY14. Ex dividend & repatriation income, ICICIBC’s core ROA remains flat at 1.55% vs. reported RoA improvement of ~7bps. Third party distribution income grew 41% to Rs 9.4bn led by life insurance (+32% YoY) and MF (+77% YoY). Third party distribution fees form 14% of total fees and 8% of non-interest inc.  View and Valuation : ICICIBC has gradually improved the B/S mix with higher contribution from granular business (Retail & SA). Further, improvements are visible in PL with better NIMs and higher contribution from retail fees. While bank’s strong liability franchise, increasing retail penetration & capital position provide comfort, its concentrated exposure to leveraged cos and risky sectors is an overhang. ICICIBC trades at ~1.7x Core-ABV on FY17E. Maintain BUY.

LINK
http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3012957