ICICI Bank - Strong core performance continues, in line - Centrum

ICICI Bank's Q2FY13 strong core performance came in line with our expectations (PPP at Rs31.9bn, up 36% YoY) led by QoQ expansion in domestic NIM and healthy loan growth. Asset quality remains comfortable with 1) GNPA largely stable QoQ 2) slippages at 1.8% 3) Credit costs under control at 75 bps and PCR healthy at ~79%. The restructured portfolio was stable QoQ at Rs41.6bn (1.5% of advances). We upgrade our earnings estimates and our fair value estimate (to Rs1200) while retaining our Buy recommendation.

- Global NIM stable QoQ: NII grew by a strong 35% yoy to Rs33.7bn led by a sequentially stable NIM and a healthy credit growth (17.6% YoY and 2.5% QoQ). Notably, domestic NIM expanded by 10bps QoQ to 3.43% as cost of funds eased during the quarter. However, excess liquidity and bond issuance expenses pulled down the international NIM and kept global NIMs flattish QoQ. The international NIMs should rebound over Q3 and Q4 as excess liquidity gets deployed, which in turn should support global NIMs.

- Loan growth healthy at 17.6%: Domestic loan growth continued to gain traction and stood at 22% YoY during Q2FY13 though weaker overseas loan growth (6% YoY) contained overall loan growth at 17.6% YoY. The domestic loan book growth was primarily driven by corporate (38.5% YoY) and SME (25% YoY). Meanwhile, retail book growth picked up (14% YoY) though the momentum is expected to gain further traction during H2FY2013. 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 stable QoQ on absolute and relative basis 2) PCR largely stable at 79% 3) Slippage rate at 1.8% and 4) credit costs contained at 75 bps. Meanwhile, the restructured portfolio was stable sequentially at 1.5% of loans. During the quarter, a large ticket media account (Rs5bn exposure) turned delinquent, for which the bank has provided 85% and hence incremental impact on profitability is unlikely.

- Core fee income performance remains weak: Non-interest income grew by decent 17.4% YoY during the quarter led by substantial treasury gains. Meanwhile core fee income (flattish YoY) continued to experience weakness led by muted revenue stream from third party distribution and corporate fee income. However, the bank expects the core fee income to gain traction gradually with pick up in investment activity.

- 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. Contained credit costs and improved profitability should help the bank deliver RoA of ~1.6% for FY13 & FY14. At the current price, the stock trades at 13x FY14E EPS and 1.8x FY14E ABVPS. We maintain Buy with a revised target price of Rs1200.

Source : Equity Bulls

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