ICICI Bank - Low provision continues to drive profit - MF Global Quarterly Report

Advances increased by 19.1% YoY and 5.2% QoQ to Rs2461bn driven by corporate and overseas (due to rupee depreciation) segment. Even sequentially, the growth in advances was driven by corporate segment on account of working capital demand whereas retail segment has witnessed moderate growth. Margins improved sequentially to 2.7% driven by 31bps QoQ margin improvement in international book driven by asset re-pricing. Non-interest income witnessed growth despite treasury losses as bank received maiden dividend from Life insurance subsidiary for H1FY12. Fee income remained muted reflecting slow down in fresh sanctions. Overhead and employee expenses were contained leading to improvement in cost to income ratio by 2.7% QoQ to 41%. Loan worth Rs8.8bn got restructured during the quarter, taking the total restructured asset to Rs31bn. Loan worth Rs13bn (GTL Rs6.5bn; 3i infotech Rs5bn) is under consideration for restructuring in Q4. Credit cost to remain stable at 0.7% for FY12 even factoring NPV loss on restructuring.

Going forward the bank expects to achieve credit growth of 18% YoY with NIM of ~2.7%. We expect earnings growth of 27% in FY12 and 18% in FY13, translating to RoA of 1.55% in FY12 and 1.60% in FY13. The stock is trading at a discount to its median valuation, despite expected improvement in its return ratio. At CMP of Rs900, the core book is trading at 1.4x FY13e ABVPS of Rs456. We have Buy rating on the stock.

- NIM stood at 2.7% (domestic 2.98% & international 1.40%). The domestic margins witnessed improvement on account increase in investment yields.

- Low-cost deposit has increased to 43.6% due NHAI bond floats. On a daily average basis it improved by 1% QoQ to 39%.

- Cost-to-income ratio improved to 41.1% and is expected to remain at 41% level as the bank does not expect significant addition in employee base.

- Provision declined by 27% due to lower accretion towards NPA. The bank has increased its PCR to 79%.

- GNPA improved to 3.82% with fresh slippage in the range of Rs8.8bn. The full year credit charge is expected to be at 0.7% - 0.8%.

Source : Equity Bulls

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