ICICI Bank - Above estimates on strong core performance - Centrum

ICICI Bank's Q1FY12 core performance came in stronger than expected (PPP at Rs29.5bn, up 32% YoY) led by positive stable NIM QoQ and strong loan growth. Asset quality remains comfortable with 1) GNPA largely stable QoQ 2) slippages at (~1.3%) 3) Credit costs under control at 71 bps and PCR healthy at ~80%. The restructured portfolio inched lower QoQ to Rs41.7bn (1.6% 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 stable QoQ: NII grew by a strong 32.4% yoy to Rs31.9bn led by a rebound in credit growth (21.6% YoY and 6% QoQ) and sequentially stable NIM. The stability in NIM is the result of 10bps increase in cost of funds offsetting a similar expansion in blended yields. While the management guided for a 10-15 bps expansion in NIM for FY2013, 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 and 3) higher share of retail loans.

- Loan growth bounces to 21.6%: Overseas loan growth benefitted from rupee depreciation (up 35% YoY), which along with strong growth in SME and domestic corporate book drove the 21.6% advances growth. Excluding the Re depreciation effect, the international loan book growth is muted at 8% YoY. Meanwhile, retail book growth remained lacklustre (10.3% YoY) though the momentum is expected to gain traction during FY2013. As an interesting shift, though not substantial, the bank has begun expanding its personal loan and credit card portfolio gradually.

- GNPA, restructured assets stable QoQ: Asset quality matrices continue to remain healthy with 1) GNPA improving by ~10 bps QoQ 2) PCR stable at 80.4% 3) Slippage rate at ~1.3% and 4) credit costs contained at 70 bps. Meanwhile, the restructured portfolio was stable sequentially after the sharp rise (~39% QoQ) in Q4FY12 and remains comfortable at 1.6% of loans.

- Weak core fee income performance: Non-interest income grew by muted 14.4% YoY during the quarter led by lackluster (4.4% YoY) growth in core fee income on continued weakness in third party distribution and corporate fee income. However, the bank benefitted from dividends from its subsidiaries - Rs1.13bn from ICICI Canada (for full year) and Rs750mn from ICICI Prudential Life Insurance. The management believes that the dividend flow is of recurring nature. Excluding the dividend from ICICI Canada, the bottomline would have been in line with our estimate.

- 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 ~1.5% for FY13 & FY14. At the current price, the stock trades at 12.2x FY14E EPS and 1.6x FY14E ABVS. We maintain Buy and retain the target price (Rs1,100).

Source : Equity Bulls

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