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Research
ICICI Bank - Strong deposit base, sturdy NIM, high NPA coverage; Buy - Anand Rathi
Posted On : 2013-09-29 00:13:36( TIMEZONE : IST )
Higher share of savings deposit to protect NIM. Over the past three years, the bank's low-cost deposits (CASA) share has sustained at an average 42.6%, no mean feat in a sector competing fiercely for low-cost deposits. More importantly, a large part of the CASA stability has been driven by sticky savings deposits, whose share has risen from 66.8% in June '10 to 70.6% in June '13. We expect the bank's 3,350 branches to support a CASA CAGR of over 21.2% through FY13-15, with a stable share of ~43% over the same period. Hence, we estimate a sturdy NIM of 3% over FY14-15.
Robust earnings progression likely over FY13-16. We expect the bank to register 19.3% CAGR in business over FY13-16e, with advances and deposit CAGR of 18.4% and 20.2%, respectively. Led by healthy business growth, CAGR of 19.4% in net interest income and 17.5% in fee income, we estimate 19% CAGR in net profit over the same period. Hence, the bank's RoA is likely to hover at 1.7%, one of the highest among peers.
High NPA coverage, asset quality risks priced in. In FY14, we expect the bank's retail segment (~36% of total advances) to see limited defaults, with the lion's share of NPA provisions driven by corporate loans. We expect credit costs of ~64bps over FY14, implying ~100bps of provisioning on nonretail loans, with NPA coverage of over 75% to be sustained. While asset quality risks would persist in a tough macro environment, a lot of negatives seem to be priced in at 8.1x FY14e EPS and 1.1x FY14e ABV. With high tier- 1 capital of 11.7%, the bank is cushioned for any asset-quality shocks ahead.
Our take. We maintain Buy on ICICI Bank, as we expect RoA of 1.7% over FY14-15 led by better NIM and stable credit costs. We value the standalone bank at Rs. 938, based on the two-stage DDM (CoE: 19.5%; beta: 1.4; Rf: 8.5%), and subsidiaries at Rs. 271, resulting in a price target of Rs. 1,209. Risk. Slower-thanexpected economic growth could impact loan growth and credit quality.
