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ICICI Bank: FY12 bears the fruits of higher CASA - Views on News from Equitymaster

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ICICI Bank: FY12 bears the fruits of higher CASA
Apr 27, 2012

ICICI Bank declared the results for the fourth quarter and financial year 2011-2012 (FY12). The bank has reported 19% YoY growth in net interest income and 33% YoY growth in net profits for the full year. Here is our analysis of the results.

Performance Summary
  • Interest income grows by 29% in FY12 on the back of 17% YoY in advances while net interest margin (NIM) remains improves to 3.0% from 2.7% in FY11.
  • Cost to income ratio remains at 44% over the past 12 months.
  • Capital adequacy ratio healthy at 18.5% at the end of March 12.
  • Net NPAs improve to 0.6% of advances in 4QFY12 (0.9% in 4QFY11).
  • Bottomline grows by 33% YoY in FY12 largely due to higher margins and write back of provisioning. Provision coverage ratio at 80% in March 2011.
  • The board has declared a dividend of Rs 16.5 per share (dividend yield 1.9%).

Rs (m) 4QFY11 4QFY12 Change FY11 FY12 Change
Interest income 71,564 91,746 28.2% 259,740 335,426 29.1%
Interest Expense 46,467 60,698 30.6% 169,571 228,085 34.5%
Net Interest Income 25,097 31,048 23.7% 90,169 107,341 19.0%
NIM (%)       2.7% 3.0%  
Other Income 18,454 22,216 20.4% 66,172 78,504 18.6%
Other Expense 18,454 22,216 20.4% 66,172 78,504 18.6%
Provisions and contingencies 3,836 4,693 22.3% 22,868 15,830 -30.8%
Profit before tax 21,261 26,355 24.0% 67,301 91,511 36.0%
Tax 4,692 7,405 57.8% 16,093 23,381 45.3%
Profit after tax / (loss) 16,569 18,950 14.4% 51,208 68,130 33.0%
Net profit margin (%) 23.2% 20.7%   19.7% 20.3%  
No. of shares (m)         1,152.8  
Book value per share (Rs)*         524.0  
P/BV (x)         1.6  
* (Book value as on 31st March 2012)

What has driven performance in FY12?
  • While keeping its incremental exposure to retail loans limited, ICICI Bank rounded off FY12 with a reasonable 17% YoY growth in loan book. This was pretty much in line with the sector average and marginally higher than our estimates. Moreover, ICICI Bank seems to have kept a close eye on CASA deposits and net interest margins in the past fiscal. The bank's deposits grew by 13% YoY in FY12. This was backed by 17% YoY growth in the term deposit base. However, the proportion of low cost deposits (CASA) was sustained at 43.5%, which is amongst the highest in the sector. On the assets side, ICICI Bank has arrested the fall in retail advances despite keeping the proportion lower. However most of the incremental lending was to the mid and large corporate segment. This ensured that the bank kept its net interest margins stable without hurting asset quality. Going forward, however, the bank may see some NPA risks emanating from its exposure to the power sector (5% of total loan book), particularly SEBs (state electricity boards). The margins (NIMs) have further room for improvement with fall in interest costs.

    Concentration on Corporate & SME
      FY11 % of total FY12 % of total Change
    Advances 2,163,660   2,537,280   17.3%
    Agriculture 194,729 9.0% 223,281 8.8% 14.7%
    Retail 887,101 41.0% 900,734 35.5% 1.5%
    Corporate 432,732 20.0% 583,574 23.0% 34.9%
    SME 86,546 4.0% 134,476 5.3% 55.4%
    International 562,552 26.0% 695,215 27.4% 23.6%
    Deposits 2,256,020   2,555,000   13.3%
    CASA 1,016,470 44.0% 1,111,425 43.5% 9.3%
    Term deposits 1,239,550 56.0% 1,443,575 56.5% 16.5%

  • The bank had 1.1% of its investments in security receipts of asset reconstruction companies and 0.6% of its investments in credit derivative exposure (on and off balance sheet) at the end of March 2012.

  • The gross NPAs (non performing assets) in absolute terms have remained stable over the past 12 months. The gross and net NPAs stood at 3.8% and 0.6% of advances respectively at the end of March 2012. The NPA coverage ratio stood at 80%, above the RBI mandate of 70%. While the coverage ratio is comfortable at the current stage, we believe that the act of writing back provisions to perk up profits was a little premature given the lingering delinquency risks. The restructured loans comprised 1.7% of ICICI's overall loan book at the end of March 2012.

  • Fee income constituted 36% of ICICI Bank's total income in FY12 same as in FY11. The 19% YoY growth in other income was despite losses in the treasury portfolio.

  • Although ICICI Bank has halved the direct marketing costs, the cost of operating the incremental branches increased by 19% YoY and the cost to income ratio remained stagnant at 44% in FY12.

What to expect?
At the current price of Rs 861, the stock is trading at a multiple of 1.4 times our estimated FY14 consolidated adjusted book value (excluding insurance businesses). The bank's margins and asset quality in FY12 have been in line with our estimates for the fiscal. Also, ICICI Bank's CAR (capital adequacy ratio) of 18.5% at the end of March 2012 is amongst the highest in the sector. This gives the bank sufficient headroom for growth even after complying with the Basel II norms. While NPA risks cannot be ruled out, we do not see the same significantly impacting the bank's long term fundamentals. We reiterate our positive view on the stock.

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