ICICI Bank - Healthy credit growth, better NIM, high NPA coverage; Buy - Anand Rathi

Modest credit growth, but better NIM and CASA share. At 15.5% yoy, ICICI Bank's credit in 2QFY14 grew faster than deposits at 9.8% yoy, with its domestic credit-to-deposits up 310bps yoy (down 50bps qoq) to 80.2%. The share of domestic corporates in loans decreased 140bps yoy to 32.6%. NIM improved 23bps yoy (9bps qoq) to 3.2%, helped by the proportion of CASA rising 263bps yoy (12 bps qoq) to 43.3%. We estimate 3% NIM over FY14-15, aided by a larger share of domestic loans and a stable, 43%, CASA share.

Improved productivity, healthy fee-income. Core cost-to-income (excl. Treasury profits) decreased 363bps yoy (211bps qoq) to 36.9%, with cost-to-assets up 14bps yoy to 1.8%. Fee income was healthy at 16.7% yoy, primarily due to better growth in fees from corporate customers. Ahead, we expect the focus on transactional services within corporate banking and on better leverage of its retail customer base to drive fee-income growth. Hence, we expect fees-to-earning-assets at ~1.6% over FY14-15.

Healthy asset quality, high NPA coverage. Despite fresh slippages of Rs. 11.5bn (1.5% of loans), gross NPA rose, though only 0.2% qoq because of substantial recoveries of Rs. 566m and write-offs of Rs. 558m. NPA coverage, at 73.1%, is one of the best in the sector. Restructured loans rose 15.4% qoq, to Rs. 68.3bn (2.1% of advances), with fresh restructuring of Rs. 10.8bn during 2QFY14. We expect credit costs of ~84bps over FY14-15, with NPA coverage of over 70% to continue. With tier-1 capital of 12% (including 1HFY14 profits), the bank is well cushioned for any asset quality shocks ahead.

Our take. Modest credit growth, higher NIM, better productivity and healthy asset quality have driven 20% yoy earnings growth in 2QFY14. We maintain a Buy, as we expect 1.7% RoA 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 target of Rs. 1,209. Risk: Less-than-expected economic growth, affecting loan growth and credit quality.

Source : Equity Bulls

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