ICICI Bank - Stable credit growth, better productivity, high NPA coverage; Buy - Anand Rathi

ICICI Bank's 2QFY13 profits were driven by strong NII and better productivity. We raise our target from Rs.1,016 to Rs.1,262 as we value the standalone bank at 1.6x FY14e BV (1.3x 1HFY14e earlier) on the higher RoE and better growth visibility. We maintain a Buy, as we expect an RoA of 1.6% over FY13-15, led by better NIM and stable credit costs.

- Stable credit growth, improving NIM. At 17.6% yoy, credit growth was ahead of system, while deposits grew slower at 14.8% yoy. The share of domestic corporates in the loan book has risen to 28.5% (24.2% in 2QFY12). NIM improved to 3% (flat qoq) on a 480-bp yoy higher domestic credit-deposit of 77.1%, despite a lower CASA share of 40.7% (42.1% in 2QFY12). We estimate NIM of +2.7% in FY13/14, helped by a higher share of domestic loans and stable CASA share of + 40%.

- Better productivity, modest fee-income. Core cost-to-income (excl. treasury profits) decreased 138bps yoy, to 42.4%, with cost-to-assets flat qoq at 1.9%. On slower loan growth, fee-income was flat yoy. Ahead, we expect the focus on transactional services within corporate banking and better leverage of its retail customer base to drive fee income growth. Hence, we expect fees-to-earning assets at +1.3% over FY13-15.

- Stable asset quality, high NPA coverage. While gross NPA grew 2.2% qoq, fresh slippages increased to Rs.11.2bn (1.6% of loans) on account of slippage in one large media account. Except for this, slippages were stable. NPA coverage, at 78.7%, is better than peers. Restructuring book, at 1.5% of advances, is manageable. Management has indicated the restructuring pipeline is not meaningful. We expect credit costs of +60bps over FY13-14, with NPA coverage of over 75% to be sustained.

- Valuation. We value the standalone bank at Rs.1,014, based on the two-stage DDM (CoE: 17.9%; beta: 1.4; Rf: 8%) and the subsidiaries at Rs.248, resulting in a price target of Rs.1,262. Risk: Slower-than-expected economic growth could impact loan growth and credit quality.

Source : Equity Bulls

Keywords