ICICI Bank Ltd (NSE:ICICIBANK) (BSE:532174)

ICICI Bank Limited (the Bank) is a banking company. The Bank is a diversified financial services group offering a range of banking and financial services to corporate and retail customers through a variety of delivery channels. The Bank operates in the segments: retail banking, wholesale banking, treasury, other banking, life insurance, general insurance and others. The Bank provides a range of commercial banking and project finance products and services, including loan products, fee and commission-based products and services, deposit products and foreign exchange and derivatives products to corporations, middle market companies and small and medium enterprises in India. Its commercial banking operations for retail customers consist of retail lending and deposit taking and distribution of third party investment products. It also offers agricultural and rural banking products.

Official website: www.icicibank.com

ICICI Bank reported a good set of numbers for 1QFY2016 with net profit growth of 12.1% yoy, while asset quality improved on a sequential basis. NIM rises sequentially; Asset quality improves During 1QFY2016, the bank’s advances grew by 15.2% yoy (3.2% qoq), aided by healthy retail loan book growth of 24.5% yoy. Secured products like home loans and auto loans grew by 26% and 23% yoy respectively, and were the major drivers towards growth of the retail loan book. Retail contribution to total loans grew to 42.6% as compared to 39.6% in the corresponding previous year quarter. A large distribution network coupled with strong capital adequacy will enable the bank to grow its retail book further over the next couple of years. The corporate book saw a loan growth of 8.7% yoy, with bulk of incremental lending to high rated corporates. Deposits growth was sluggish at 9.6% yoy, while CASA deposits saw a healthy pickup with a growth of 12.4% yoy, resulting in improvement in CASA ratio by 111bp yoy to 44.1% as of 1QFY2016. The Reported NIM fell by 3bp qoq to 3.54%, with domestic NIM at 3.9% as compared to 3.99% in 4QFY2015. Decrease in domestic NIM was mainly on account of reduction in base rate during the quarter. The non-interest income (excluding treasury) for the bank grew at 13% yoy, with fee income picking up pace with a growth of 9%. On the asset quality front, the bank witnessed slippages during the quarter of Rs1,672cr (annualized slippage ratio at 1.7%) as compared to Rs3,260cr in the sequential previous quarter (annualized slippage ratio at 3.85%), with slippage from restructuring at Rs292cr. The Gross NPA ratio decreased 10bp sequentially to 3.7%, whereas the Net NPA fell by 3bp qoq to 1.6%. Fresh restructuring for the quarter was of Rs1,962cr and the bank has a refinancing pipeline of Rs1,000cr. The Management has given guidance that addition to NPA and restructuring will be lower in FY2016 as compared to FY2015 and credit cost will be around 90bp to 95bp in FY2016 as compared to 109bp in FY2015. Outlook and valuation: At the current market price, the bank’s core banking business (after adjusting Rs48/share towards value of subsidiaries) is trading at 1.7x FY2017E ABV. From a structural point of view, keeping in mind its robust franchise and capital adequacy position, the bank is well positioned to grow by at least a few percentage points higher than the average industry growth rate, as and when the business environment turns conducive. We maintain our Buy recommendation on the bank with a price target of Rs370.

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