ICICI Bank - Above estimates on lower provisions - Centrum

ICICI Bank's core performance was in line with our estimate (PPP in line); though led by lower provisions the bottom-line was above expectations at 17.3bn (up 20.3% YoY). Asset quality remains comfortable with 1) GNPA stable QoQ 2) slippages under control (1.4%) 3) Credit costs under control at 60 bps and PCR healthy at ~79%. While the restructured portfolio has increased by 11% QoQ (with additional Rs13bn under consideration), it remains comfortable at 1.2% of advances. We maintain our fair value estimate and recommend Buy and believe that ICICI Bank is one of the safest bets in the current asset quality cycle that also offers decent upside.

NIM expands 10bps QoQ, Loan growth @ 19%: NII grew by a healthy 17% yoy (in-line) to Rs27.1bn led by a credit growth (19% yoy) and 10 bps QoQ expansion in reported NIM. The NIM expansion is more due to lower cost of funds for Q3FY12 while blended yields were largely flat QoQ. While the management guided for a NIM of ~2.8%, we believe that NIM could surprise on the upside based on 1) lower share of low-yielding international book 2) benefit of lower losses on security receipts related to loans sold 3) reversal of domestic interest rate cycle in FY2013.

Asset quality stable, restructuring on rise but comfortable: Asset quality matrices continue to remain healthy with 1) GNPA improving by ~30 bps QoQ 2) PCR maintaining strong 79% 3) Slippage rate contained at 1.4% and 4) credit costs contained at 0.6%. Management aims to contain credit costs at ~70bp for FY12 and ~75bp for FY13, including potential losses on Rs13bn in loans already in the restructuring pipeline. While the restructured portfolio has increased by 11% QoQ (with additional Rs13bn under consideration), it remains comfortable at 1.2% of advances.

Loan growth healthy but challenges remain: Loan growth benefitted from rupee depreciation which propped up the overseas loan book (reported 38% YoY, ex-Re depreciation at 16.5%). The domestic loan book was primarily driven by domestic corporate loans (up 23.8% YoY) while retail book growth was tepid at ~4.5% YoY. Given the anticipated weakness in overall domestic loan demand coupled with significant run-offs in overseas book, maintaining loan growth is likely to be a challenge for the bank during FY13.

Lackluster non-interest income growth: Non-interest income grew by a tepid 8% YoY during the quarter led by continued weakness in retail loan offtake and third party distribution. Dividend flow from insurance subsidiary saved the day and is likely to continue over quarters to come.

Maintain Buy: Not withstanding the challenges on loan growth, we draw significant comfort on asset quality front led by a limited restructured portfolio, strong PCR and relatively conservative loan book build up in the past 2 years. Potential upside surprise on NIMs and contained credit costs should help the bank deliver RoA of ~1.4% for FY12 & FY13. At current price, the stock trades at 13.6x FY13 EPS and 1.7x FY13 ABVS. We maintain Buy.

Source : Equity Bulls

Keywords