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ICICI Bank: Small looks better - Views on News from Equitymaster
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ICICI Bank: Small looks better
Apr 26, 2010

ICICI Bank declared its FY10 results. The bank has reported 17% YoY fall in interest income and 7% YoY growth in net profits for the period. Here is our analysis of the results.

Performance summary
  • Interest income falls by 17% YoY in FY10; advances drop by 17% YoY. Net interest margin (NIM) improves due to higher CASA proportion (42% of deposits).
  • Operating costs drop with cost to income ratio at 38% in FY10 (44% in FY09).
  • Capital adequacy ratio healthy at 19.4% at the end of FY10.
  • Net NPAs improve marginally to 1.9% of advances in FY10 (2% in FY09).
  • Bottomline grows by 7% YoY due to lower operating costs.
  • Declared dividend of Rs 12 per share (dividend yield 1.2%).

Standalone numbers
Rs (m) 4QFY09 4QFY10 Change FY09 FY10 Change
Interest income 75,296 58,269 -22.6% 310,925 257,069 -17.3%
Interest Expense 53,908 37,920 -29.7% 227,259 175,925 -22.6%
Net Interest Income 21,388 20,349 -4.9% 83,666 81,144 -3.0%
Net interest margin (%)       2.4% 2.5%  
Other Income 16,736 18,908 13.0% 76,037 74,776 -1.7%
Other Expense 16,570 15,268 -7.9% 70,451 58,598 -16.8%
Provisions and contingencies 10,845 9,897 -8.7% 38,082 43,868 15.2%
Profit before tax 10,709 14,092 31.6% 51,170 53,454 4.5%
Tax 3,271 4,035 23.4% 13,588 13,203 -2.8%
Profit after tax/ (loss) 7,438 10,057 35.2% 37,582 40,251 7.1%
Net profit margin (%) 9.9% 17.3%   12.1% 15.7%  
No. of shares (m)       1,113.3 1,114.9  
Book value per share (Rs)*         463.0  
P/BV (x)         2.1  
* Book value as on 31st March 2010

What has driven performance in FY10?
  • ICICI Bank showed no willingness to grow its asset book even in the last quarter of FY10. As a result its advances dropped by 17% YoY at the end of FY10. This was backed by 8% YoY fall in the deposit base as well. While ICICI Bank attributed the fall in advances to repayments by retail and international customers, the bank's unwillingness to incremental lending was also evident. On the liabilities side, it concentrated on CASA (low cost) deposits which grew to 42% of the bank's total deposits in FY10 from 29% in FY09.

    Over the past few quarters, ICICI Bank continued its attempt to avoid incremental delinquencies and conserve capital. As a result, despite a very comfortable capital adequacy ratio, the bank has refrained from growing its asset book. Higher CASA proportion helped improve the bank’s NIMs from 2.4% in FY09 to 2.5% in FY10. While the bank’s balance sheet de-growth so far has been lower than our estimates, it is well on track to achieve our profit growth estimates. For FY11, the bank is estimating advance growth at marginally lower than the industry average rates (15 to 20%).

    Risk averse structuring…
    (Rs m) FY09 % of total FY10 % of total Change
    Advances 2,183,110   1,812,060   -17.0%
    Retail 1,294,584 59.3% 788,246 43.5% -39.1%
    Corporate 294,720 13.5% 670,462 37.0% 127.5%
    Rural 159,367 7.3% 90,603 5.0% -43.1%
    SME 43,662 2.0% 72,482 4.0% 66.0%
    International 390,777 11.3% 190,266 10.5% -51.3%
    Total deposits 2,183,480   2,020,170   -7.5%
    CASA 626,680 28.7% 842,150 41.7% 34.4%
    Term deposits 1,556,800 71.3% 1,178,020 58.3% -24.3%
    Credit/Deposit 100.0%   89.7%    

  • The gross NPAs (non performing assets) in absolute terms have marginally reduced in ICICI Bank’s books in the past 12 months. The bank’s net NPAs (as percentage of total advances) also came down marginally to 1.9% in FY10, from 2% in FY09. The bank stated that 44% of net retail NPA was from unsecured products. The NPA coverage ratio stood at 60%. ICICI Home Finance had net NPA of 1.3% at the end of FY10.

  • Fee income constituted 40% of ICICI Bank’s total income in FY10 as against 47% in FY09. The 2% YoY fall in other income was primarily due to lower fees (down 13% YoY) despite higher 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 (38% in FY10). The bank plans to hire 5,000 employees during the current fiscal.

What to expect?
At the current price of Rs 976, the stock is trading at a multiple of 2.1 times our estimated FY12 standalone adjusted book value (including ICICI Home Finance). While it is encouraging to note that ICICI Bank is getting very candid about the disclosures of NPAs, the potential risks to the same cannot be sidelined. Given the size of ICICI Bank’s balance sheet, its conscious strategy of withholding any further growth in the same for a couple of quarters is, however, not a matter of serious concern. We continue to believe that the current valuations of the bank leave very little on the table for investors.

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