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ICICI Bank: Prov writebacks ease cost pressure
Apr 28, 2011

ICICI Bank declared the results for the fourth quarter of financial year 2010-11 (4QFY11). The bank has reported 23% YoY growth in net interest income and 44% YoY growth in net profits for the period. Here is our analysis of the results.

Performance summary
  • Interest income grows by 23% in 4QFY11 and remains flat YoY for the full year. Advances grow by 19% YoY while net interest margin (NIM) improves due to higher CASA proportion.
  • Operating costs move up with cost to income ratio at 42% in FY11 (38% in FY10).
  • Capital adequacy ratio healthy at 19.5% at the end of FY11.
  • Net NPAs improve to 0.9% of advances in FY11 (1.9% in FY10).
  • Bottomline grows by 28% YoY in FY11 backed by write back of provisioning. Provision coverage ratio at 76% in March 2011, in line with RBI mandate.
  • The bank has declared dividend of Rs 14 per share (dividend yield 1.3%).


Rs (m) 4QFY10 4QFY11 Change FY10 FY11 Change
Interest income 58,269 71,565 22.8% 257,069 259,740 1.0%
Interest Expense 37,920 46,467 22.5% 175,925 169,571 -3.6%
Net Interest Income 20,349 25,098 23.3% 81,144 90,169 11.1%
NIM (%)       2.5% 2.6%  
Other Income 18,908 16,406 -13.2% 74,776 66,479 -11.1%
Other Expense 15,268 18,454 20.9% 58,598 66,172 12.9%
Provisions and contingencies 9,897 3,836 -61.2% 43,868 22,868 -47.9%
Profit before tax 14,092 19,214 36.3% 53,454 67,608 26.5%
Tax 4,035 4,692 16.3% 13,203 16,093 21.9%
Profit after tax / (loss) 10,057 14,522 44.4% 40,251 51,515 28.0%
Net profit margin (%) 17.3% 20.3%   15.7% 19.8%  
No. of shares (m)         1,151.8  
Book value per share (Rs)*         478.0  
P/BV (x)         2.3  
* (Book value as on 31st March 2011)

What has driven performance in FY11?
  • ICICI Bank's performance in terms of balance sheet growth has been in line with our expectations. While the bank's growth rate 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 19% YoY in FY11. This was backed by 8% 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 most of the incremental lending was to the mid and large corporate segment. On the liabilities side, CASA (low cost) deposits grew to 45% of the bank's total deposits in FY11 from 42% in FY10.

    CASA lead growth
      FY10 % of total FY11 % of total Change
    Advances 1,812,060   2,163,660   19.4%
    Agriculture 163,085 9.0% 209,875 9.7% 28.7%
    Retail 742,945 41.0% 837,336 38.7% 12.7%
    Corporate 362,412 20.0% 460,860 21.3% 27.2%
    SME 72,482 4.0% 103,856 4.8% 43.3%
    International 471,136 26.0% 551,733 25.5% 17.1%
    Deposits 2,020,170   2,177,470   7.8%
    CASA 782,470 41.7% 962,000 45.1% 22.9%
    Term deposits 1,237,700 58.3% 1,215,470 54.9% -1.8%

  • Higher CASA proportion helped improve the bank's NIMs from 2.5% in FY10 to 2.6% in FY11. For coming fiscal too, the bank is targeting advance growth in line with the industry average rates. We have estimated NIMs at 2.8% for FY12, considering the potential upward re-pricing of loans.

  • The gross NPAs (non performing assets) in absolute terms have grown by 5% YoY. The gross and net NPAs in retail loans were at 8% and 2% respectively at the end of March 2011. The bank's net NPAs (as percentage of total advances), however, came down marginally to 0.9% in FY11, from 1.9% in FY10. The NPA coverage ratio stood at 76%, above the RBI mandate of 70%.

  • Fee income constituted 41% of ICICI Bank's total income in FY11 as against 36% in FY10. The 11% 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 1,112, the stock is trading at a multiple of 2.0 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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