ICICI Bank - 4QFY12 Inspires Confidence; BUY - Prabhudas Lilladher

ICICI bank's 4Q12 results inspires significant conficence of improving core growth trends and sustenance of robust asset quality in FY13. Higher margin domestic business will drive loan growth and low base in corporate banking fees will aid fee growth recovery. With a strong topline performance and absence of securitisation losses, we expect core PPOP growth of 22% in FY13 (first +15% PPOP growth since FY08). Inspite of conservative credit cost assumptions, core ROEs will improve from 11% in FY10 to 15.5-16% in FY14 driving lower valuation discount to peers. With ~15% correction from mid Feb-12 levels, robust asset quality and some signs of growth in the domestic book, we upgrade our recommendation again to BUY from ACCUMULATE with a Mar-13 PT of Rs1050/share (+23% upside, 1.8x Sep-13 book).

- Evaluating positives and negatives: Positives: (1) Strong margin surprise driven by lagged re-pricing and reduced securitisation losses (2) Pickup in domestic loan growth with robust growth continuing in the corporate book and disbursements picking up sharply in the retail book (3) Improving asset quality with lower sequential gross slippages (Rs6.4bn v/s Rs8.8bn) and very low restructuring pipeline providing comfort on near term asset quality. 2 Negatives (1) Core fee income contracted but FY12 sets a low base for growth in FY13 and (2) Weak outlook for growth in overseas book will pull down overall loan growth in FY13.

- Strong positive drivers in FY13: (1) Higher share of domestic loan book and no losses on securitisation will drive ~15bps margin improvement (2) Pick up in core fees from a very low project finance and insurance fees and lower MTM losses on security receipts (Rs4bn in FY12) will lead to a recovery in fee income.(3) Asset quality continues to remain robust and our ~90bps of credit costs assumption leaves scope for positive surprise (~75bps management guidance).

- Returning back to strong operating profit growth: After just 7% PPOP growth over last 4 yrs we expect ~21% PPOP growth over next 2 yrs leading to signific
tghrf vcbant improvement in core ROEs.

Source : Equity Bulls

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