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ICICI Bank: Quality control showing results - Views on News from Equitymaster
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ICICI Bank: Quality control showing results
Jan 24, 2011

ICICI Bank declared its 3QFY11 results. The bank has reported 12% YoY growth in net interest income and 31% YoY growth in net profits for the period. Here is our analysis of the results.

Performance summary
  • Interest income falls by 5% YoY while advances grow by a marginal 15% YoY in 9mFY11. Net interest margin (NIM) improves due to higher CASA proportion (44% of deposits).
  • Operating costs move up with cost to income ratio at 41% in 9mFY11 (37% in 9mFY10).
  • Capital adequacy ratio healthy at 19.9% at the end of 9mFY11.
  • Net NPAs improve to 1.2% of advances in 3QFY11 (2.2% in 3QFY10).
  • Bottomline grows by 23% YoY in 1HFY11 backed by write back of provisioning. Provision coverage ratio at 72% in December 2010, in line with RBI mandate.


Rs (m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
Interest income 60,895 66,959 10.0% 198,799 188,176 -5.3%
Interest Expense 40,315 43,842 8.7% 138,005 123,104 -10.8%
Net Interest Income 20,580 23,117 12.3%  60,794  65,072 7.0%
NIM (%)       2.5% 2.6%  
Other Income 16,731 17,487 4.5%  55,868  50,072 -10.4%
Other Expense 13,623 17,179 26.1%  43,329  47,718 10.1%
Provisions and contingencies 10,022 4,643 -53.7%  33,971  19,032 -44.0%
Profit before tax 13,666 18,782 37.4%  39,362  48,394 22.9%
Tax 2,656 4,413 66.2% 9,167  11,401 24.4%
Profit after tax / (loss) 11,010 14,369 30.5%  30,195  36,993 22.5%
Net profit margin (%) 18.1% 21.5%   15.2% 19.7%  
No. of shares (m)         1,151.0  
Book value per share (Rs)*         481.6  
P/BV (x)         2.5  
* (Book value as on 31st December 2010)

What has driven performance in 9mFY11?
  • While ICICI Bank’s balance sheet growth continued to trial that of the sector, the attempts to improve net interest margin and asset quality have started yielding results. The bank’s advances grew by 15% YoY in 9mFY11. This was backed by 10% YoY growth in the deposit base as well. Appreciably all the growth in deposits came in from accretion to CASA. On the assets side, ICICI Bank has arrested the fall in retail advances. However rural and agricultural loans have seen a dip in the nine month period. On the liabilities side, CASA (low cost) deposits grew to 44% of the bank's total deposits in 9mFY11 from 40% in 9mFY10.

    Corporate loans lead growth
      9mFY10 % of total 9mFY11 % of total Change
    Advances 1,792,690   2,066,920   15.3%
    Agriculture 161,342 9.0% 152,952 7.4% -5.2%
    Retail 735,003 41.0% 789,563 38.2% 7.4%
    Corporate 358,538 20.0% 533,265 25.8% 48.7%
    SME   71,708 4.0%   86,811 4.2% 21.1%
    International 466,099 26.0% 504,328 24.4% 8.2%
    Deposits 1,976,530   2,177,470   10.2%
    CASA 782,470 39.6% 962,000 44.2% 22.9%
    Term deposits    1,194,060 60.4%     1,215,470 55.8% 1.8%

    Higher CASA proportion helped improve the bank’s NIMs from 2.5% in 9mFY10 to 2.6% in 1HFY11. For full year FY11, the bank is targeting advance growth at marginally lower than the industry average rates (18 to 20%). We have estimated NIMs at 2.8% for FY11, considering the potential upward re-pricing of loans.

  • The gross NPAs (non performing assets) in absolute terms have grown by 12% YoY. The gross and net NPAs in retail loans were at 8% and 2% respectively at the end of December 2010. The bank’s net NPAs (as percentage of total advances), however, came down marginally to 1.2% in 9mFY11, from 2.2% in 9mFY10. The NPA coverage ratio stood at 72%, above the RBI mandate of 70%.

  • Fee income constituted 40% of ICICI Bank’s total income in 9mFY11 as against 36% in 9mFY10. The 10% YoY fall in other income was primarily due to fall in treasury income.

  • Although ICICI Bank has halved the direct marketing costs, the cost of operating the incremental branches may increase the cost to income ratio from the current levels. The bank plans to hire 5,000 employees during FY12.

What to expect?
At the current price of Rs 1,182, the stock is trading at a multiple of 2.2 times our estimated FY13 standalone adjusted book value (including ICICI Home Finance). It is encouraging to note that ICICI Bank has become cautious about growing its balance sheet size as well as enhanced its provision coverage ratio. While the bank’s margins and other income potential do have substantial upside, we continue to believe that the current valuations of the bank (ResearchPro subscribers can view latest updates here) leave very little on the table for investors.

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