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ICICI Bank: Strong CASA base shields profits

Apr 27, 2013

ICICI Bank declared the results for the fourth quarter and financial year 2012-13 (FY13). The bank has reported 29% YoY growth in net interest income and 29% YoY growth in net profits for FY13. Here is our analysis of the results.

Performance summary
  • Net interest income grows by 29% in FY13 on the back of 14% YoY in advances while net interest margin (NIM) improved to 3.1% from 2.7% in FY12.
  • Cost to income ratio reduces to 40.5% from 42.9% in FY12.
  • Capital adequacy ratio healthy at 18.7% at the end of March 2013.
  • Net NPAs at 0.64% of advances in FY13, same as in FY12.
  • Bottomline grows by 29% YoY in FY13 largely due to higher interest margins and cost efficiency.

Standalone financials
Rs (m) 4QFY12 4QFY13 Change FY12 FY13 Change
Interest income 91,746 103,653 13.0% 335,426 400,756 19.5%
Interest Expense 60,698 65,621 8.1% 228,085 262,091 14.9%
Net Interest Income 31,048 38,032 22.5% 107,341 138,665 29.2%
NIM (%)       2.7% 3.1%  
Other Income 22,284 22,081 -0.9% 75,072 83,457 11.2%
Other Expense 22,216 24,072 8.4% 78,504 90,128 14.8%
Provisions and contingencies 4,693 4,600 -2.0% 15,830 18,025 13.9%
Profit before tax 26,423 31,441 19.0% 88,079 113,969 29.4%
Tax 7,405 8,400 13.4% 23,427 30,712 31.1%
Profit after tax / (loss) 19,018 23,041 21.2% 64,652 83,257 28.8%
Net profit margin (%) 20.7% 22.2%   19.3% 20.8%  
No. of shares (m)         1,153.6  
Book value per share (Rs)*         607.0  
P/BV (x)         1.9  
* (Consolidated book value as on 31st March 2013)

What has driven performance in FY13?
  • Although ICICI Bank was amongst the earliest entities in private sector banking to vow keeping balance sheet expansion muted in FY13, it did close the fiscal very near to its peers in terms of growth rate. The motives were both capital conservation as well check on asset quality. In terms of loan growth and deposit growth, ICICI Bank's numbers have come in a tad lower than the growth rate posted by most of its private sector peers. However, given the bank's balance sheet size the cautious undertone has certainly paid off by way of better and more stable net interest margins. The bank's NIMs at 3.1% at the end of March quarter is not just higher than 2.7% in FY12. It has also managed to retain margins at the same level for the past 4 quarters. Thus, ICICI Bank has displayed ample resilience to the economic downturn over the past few quarters.

    Although, ICICI Bank seems to have kept a close eye on CASA deposits, the proportion of the same remained flattish. The bank's deposits grew by 14.5% YoY in FY13, while there was 12.6% YoY growth in the term deposit base.

    On the assets side, ICICI Bank has kept the proportion of retail advances in check. However most of the incremental lending was to the large corporate segment. This ensured that the bank kept its net interest margins stable without hurting asset quality. Going forward, the bank may see some NPA risks emanating from its exposure to the power sector, particularly SEBs (state electricity boards). The margins (NIMs) may remain stable with fall in interest costs.

    Loan growth concentrated in Corporate segment
      FY12 % of total FY13 % of total Change
    Advances 2,537,280   2,902,490   14.4%
    Retail 964,166 38.0% 1,073,921 37.0% 11.4%
    Corporate 725,662 28.6% 943,309 32.5% 30.0%
    SME 152,237 6.0% 150,929 5.2% -0.9%
    International 695,215 27.4% 734,330 25.3% 5.6%
    Deposits 2,555,000   2,926,140   14.5%
    CASA 1,044,995 40.9% 1,226,053 41.9% 17.3%
    Term deposits 1,510,005 59.1% 1,700,087 58.1% 12.6%

  • The bank had 0.7% of its investments in security receipts of asset reconstruction companies and credit derivative exposure (on and off balance sheet) at the end of March 2013.
  • The gross NPAs (non performing assets) in absolute terms have remained stable over the past 12 months. The gross and net NPAs stood at 3.3% and 0.6% of advances respectively at the end of March 2013. The NPA coverage ratio stood at 76.8%. The restructured loans comprised 1.8% of ICICI's overall loan book at the end of March 2013. Worth noting that the bank also sold some of its exposure to Kingfisher Airlines to an arm of Srei Infra Finance in 1HFY12.
  • Fee income constituted 32% of ICICI Bank's total income in FY13 as against 38.7% in FY12. The 11.2% YoY growth in other income was boosted by dividend from subsidiaries.
  • Lower the direct marketing costs helped ICICI Bank bring down the cost to income ratio to 40.5% in FY13 from 42.9% in FY12.

What to expect?

At the current price of Rs 1,144, the stock is trading at a multiple of 1.6 times our estimated FY15 consolidated adjusted book value (excluding insurance businesses). The bank's performance boosts our confidence with regard to its margins and asset quality. Also, ICICI Bank's CAR (capital adequacy ratio) of 18.7% at the end of March 2013 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.

Worth noting that we value ICICI Bank at a relative discount to private sector peers due the bank's past history of risky operations and managerial decision making. The current valuations of the bank warrant caution. We would recommend investors to not buy any more of the stock at the current levels.

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