Recommendations » India

ICICI bank 3QFY2013 performance highlights and results update

Contributed by Angel Broking

For 3QFY2013, ICICI bank delivered a strong performance, both on the operating as well as on the asset quality front. The bank witnessed a growth 24.1% yoy growth in its operating income, in-line with our expectations. However, lower-than-expected provisioning, as the bank managed to broadly hold on to its good asset quality, enabled it to deliver strong earnings growth of 30% yoy.

Advance growth healthy; NIMs improve by 7bp qoq: During 3QFY2013, the bank’s advances grew by 16.5% yoy, aided by a strong growth of 26.6% and 23.9% yoy in the corporate book and the SME book, respectively. The growth in the retail portfolio came in healthy at 17.2% yoy. Deposits accretion remained moderate with a growth of 9.9% yoy. Growth in CASA deposits, stood muted at 3.2% yoy. While savings deposits increased by 10.8% yoy, the current deposits declined by 10.9% yoy. As of 3QFY2013, CASA ratio improved sequentially by 24bp to 40.9%. The reported overall NIM improved by 7bp sequentially at 3.1%, mainly on account of 9bp qoq improvement in international NIM to 1.31% (due to reduction of excess liquidity on large bond redemption in October, 2012) and also due to 4bp sequential improvement in the reported domestic NIM to 3.47%. The non-interest income (excluding treasury) remained flat on a yoy basis to Rs.1,964cr, as trends of moderation in the fee income continued. The bank registered a treasury gain of Rs.251cr (primarily bond gains) compared to a loss of Rs.65cr in 3QFY2012. During 3QY2013, the bank’s gross NPA levels came off sequentially by 2.7%, on an absolute basis, aided by better than expected recoveries/upgrades and sequentially lower slippages. Recoveries/upgrades came in better than expected and remained healthy at Rs.570cr, compared to Rs.558cr in 2QFY2013. Slippages came in at Rs.850cr (annualized slippages rate at 1.3%) compared to Rs.1,220cr in 2QFY2013 (annualized slippage rate of 1.9%).

Outlook and valuation: The bank’s substantial branch expansion in the past three to four years is expected to sustain a far more favorable deposit mix going forward. Moreover, a lower risk balance sheet has driven down NPA provisioning costs, which we believe will drive a 22.8% CAGR in net profit over FY2012-14E and enable a RoE of 15.9% by FY2014E (with further upside from financial leverage). At the current market price, the bank’s core banking business (after adjusting Rs.153/share towards value of the subsidiaries) is trading at 2.0x FY2014E ABV (including subsidiaries, the stock is trading at 1.9x FY2014E ABV). We value the bank’s subsidiaries at Rs.153/share and the core bank at Rs.1,251/share (2.5x FY2014E ABV). We maintain our Buy rating on the stock with a target price of Rs.1,404.