ICICI Bank - Strong core performance continues - Centrum

ICICI Bank's Q3FY13 results revealed continuity in strong core performance and consistent delivery of 30% bottomline growth - a result of sustained NIMs and contained credit cost led by stable asset quality (GNPA & restructured assets). We remain Buyers into the stock with price objective of Rs1,350.

Global NIM inches up to 3.1%: NII grew by a strong 29% YoY to Rs35bn led by 7bps sequential expansion in NIM and a healthy credit growth (16.5% YoY and 4.2% QoQ). Notably, domestic NIM expanded by around 5bps QoQ to 3.47% as easing in cost of funds helped offset lower yields on investment book. Excess liquidity continued to suppress international NIM, though management expects normalisation (to 1.4%) in forthcoming quarters.

Loan growth healthy at 16.5%: Domestic loan growth continued to gain traction and stood at 21% YoY during Q3FY13 though weaker overseas loan growth (6% YoY) contained overall loan growth at 16.5% YoY. The domestic loan book growth was primarily driven by corporate (27% YoY) and SME (24% YoY). Meanwhile, retail book picked up pace further (17% YoY) despite intensifying competition in key segments. Corporate working capital demand, disbursements from past project finance sanctions and retail segment should continue to drive a healthy loan growth in FY14 as well.

GNPA, restructured assets stable QoQ: Asset quality matrices continued to remain healthy with 1) GNPA coming off marginally - 3% & 23bps QoQ on absolute and relative basis 2) PCR largely stable at 78% 3) Slippage rate normalizing to around 1% and 4) credit costs contained at 55 bps. Meanwhile, the restructured portfolio was stable sequentially at 1.5% of loans. The bank holds a restructuring pipeline of around Rs10bn which could push the ratio to 1.7% by the end of FY13, though this would still be comfortable vs many peers.

Core fee income performance remains weak: Non-interest income grew by decent 17% YoY during the quarter led by substantial treasury gains. Meanwhile core fee income (just 4% YoY) continued to experience weakness led by muted revenue stream from corporate lending related fee income streams though forex and TPD streams continued to fare well. The overall core fee income should gain traction gradually with anticipated pick up in investment activity over FY14.

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. Moreover, during the past few quarters the bank showed consistent delivery (30% PAT growth) on the back of disciplined approach towards growth, profitability and quality. At the current price, the stock trades at 13.8x FY14E EPS and 1.9x FY14E ABVPS. We maintain Buy with a revised target price of Rs1,350.

Source : Equity Bulls

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