Strong loan growth, stable asset quality and margins enabled ICICI Bank to post higher than expected numbers for the September 2012 quarter. Higher treasury income more than offset the impact of muted fee income on its non-interest income. The stock trades at 1.7 times FY14 estimated adjusted book value. Most analysts remain bullish on the bank given its relatively inexpensive valuations compared to peers and improving business prospects.
"Overall healthy set of numbers from ICICI Bank. It is doing well like other peers but is trading at cheaper valuations than HDFC bank. Hence, we believe upsides of 15- 20% on the ICICI stock cannot be ruled out. We expect earnings to grow by 18-20% in FY13, despite some likely pressure on asset quality going forward", says Vaibhav Agrawal, VP Research-Banking , Angel Broking.
Loan growth strong, profit driven by non-core factors
Healthy loan growth of 18% was largely driven by retail loan book (up 14% y-o-y). The bank continues to witness sluggishness in corporate loan book (28% of total loan book)- in sync with a weakening macro. ICICI Bank is primarily meeting the working capital requirements of corporates. The management expects its credit growth to be at 20% for this fiscal (up from 17.3% in FY12). Analysts, though, expect this metric to moderate going forward (see table). While its non-interest income grew by a healthy 17% rate, fee income growth continued to be muted at 0.53% y-o-y due to subdued corporate activity. However, higher treasury income of Rs 172 crore (versus negative income of Rs 80 crore y-o-y) cushioned non-interest income growth. Thus, a large part of the growth was driven by non-core parameters.
ICICI Bank's total deposits grew by 15% y-o-y, in line with its historical trend of 13-15% growth. The low-cost current and savings account (CASA) ratio witnessed slight moderation from 39.1% sequentially to 37.5% in September quarter. Strong treasury income, lower costs and higher net interest margins (NIMs) enabled ICICI Bank to post a robust 30% growth in its bottom-line for the September 2012 quarter. Its provisions grew by 59% y-o-y to Rs 508 crore, but came in slightly lower than analysts expectations of about Rs 550 crore. The bank's net interest margin expanded by 39 basis points y-o-y and remained stable due to the falling interest rates.
Solid asset quality
The bank witnessed a slight fall in its restructured assets on a sequential basis to Rs 4,160 (1.6% of loans). The bank has about Rs 500 crore exposure to Deccan Chronicle which was classified as a non performing asset (NPA) in the quarter. Its gross NPA ratio remained unchanged at 3.54% sequentially while the net NPA figure inched up a bit to 0.78% versus 0.71% sequentially. The management expects net NPA to remain in the range of 0.50-0.75 in FY13. Notably, the bank has been improving its asset quality every quarter since June 2011 when the gross NPA stood at 4.4%. Provision coverage ratio remained strong at 78.7% in the quarter.
" ICICI Bank's asset quality has been holding fairly well over the past few quarters. We expect this to continue, given the benign asset quality in the retail segment, changing loan portfolio mix (unsecured retail loans now constitute just 1.3% of overall loans as against 9% plus in FY08), and better risk management practices" believe banking analysts at Motilal Oswal Securities.
