ICICI Bank 3QFY2014 performance highlights and results update
February 3, 2014, Monday, 06:33 GMT | 02:33 EST | 12:03 IST | 14:33 SGT
ICICI Bank reported a healthy operating performance for 3QFY2014. Its earnings grew at a moderate 12.5% yoy (excluding the impact of special provision of Rs.215cr for deferred tax liability on special reserve, PAT growth would have been 22% yoy). Other key highlights from the result were a) healthy NII growth of 22% on back of healthy loan book growth of 16% yoy and sequentially stable margins at 3.3%, b) robust treasury performance and strong dividend income growth aided a 27% yoy growth in non-interest income and c) on a negative note, fresh stressed asset addition stood at Rs.3,200cr for the quarter (much higher than guidance) and guidance for fresh stressed assets for 4QFY2014 has also been increased (restructuring pipeline under CDR at Rs.3,000cr), while guidance for credit costs has been maintained at 90-100bp.
NIM stable sequentially; Asset quality witnesses pressures: During 3QFY2014, the bank’s advances grew by 16.0% yoy (4.7% qoq), aided by healthy retail loan book growth of 22.0% yoy. Domestic corporate advances grew at a subdued pace of 6.8% yoy, while advances at overseas branches grew by 24.1% yoy, aided by USD1bn lending for FCNR (B) deposits. Deposits accretion was moderate with a growth of 10.7% yoy. The average CASA ratio declined 140bp qoq to 39.1%. Reported overall NIMs remained stable qoq at 3.3%. During 3QFY2014, the bank witnessed slippages of Rs.1,230cr (annualized slippages ratio of 1.7%; almost flat sequentially), while fresh restructuring during the quarter amounted to Rs.2,000cr. Recoveries and upgrades came in lower sequentially at Rs.356cr compared to Rs.566cr in 2QFY2014. Flat slippages and lower recoveries/upgrades resulted in 4% sequential increase in absolute Gross NPA levels for the bank, which is a moderate increase given the prevailing macro environment. Net NPAs, on an absolute basis, increased 15.6% qoq (as PCR came off by 310bp qoq to 70%). The Gross NPA ratio declined 3bp sequentially to 3.1%, while the net NPA ratio increased by 9bp qoq to 0.9%. As per the Management, advances worth Rs.3,000cr remain in the restructuring pipeline for CDR, while it has maintained its guidance for credit costs of 90-100bp for the entire FY2014.
Outlook and valuation: At CMP, the bank’s core banking business (after adjusting Rs.187/share towards value of the subsidiaries) is trading at 1.4x FY2015E ABV, which is below our fair value estimate for the bank. In the near term, given the weak macro environment and cautious outlook for the sector, stocks such as ICICI Bank may undershoot fair value estimates. But from a structural point-of-view compared to peers, keeping in mind its robust franchise and capital adequacy, it remains one of the preferred banks, in our view, from a medium term perspective. We maintain our Buy recommendation with a price target of Rs.1,220.