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ICICI Bank: Gross NPAs up 45% YoY - Views on News from Equitymaster
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ICICI Bank: Gross NPAs up 45% YoY
Apr 28, 2015

ICICI Bank declared the results for the fourth quarter and financial year 2014-15 (FY15). The bank has reported 16% YoY growth in net interest income and 14% YoY growth in net profits for FY15.Here is our analysis of the results.

Performance summary
  • Net interest income grows by 16% in FY15 on the back of 14% YoY growth in advances while net interest margin (NIM) improved to 3.5% from 3.3% in FY14.
  • Cost to income ratio reduces to 37% from 38% in FY14.
  • Capital adequacy ratio healthy at 17% at the end of March 2015.
  • Net NPAs rise to 1.4% of advances in FY15, from 0.8% in FY14. Restructured loans stood at 2.8% of advances in March 2015 as against 3.1% in March 2014.
  • Bottomline grows by 14% YoY in FY15 largely due to higher interest margins and cost efficiency.

Consolidated financial performance
Rs (m) 4QFY14 4QFY15 Change FY14 FY15 Change
Interest income 114,892 127,384 10.9% 441,781 490,911 11.1%
Interest Expense 71,327 76,590 7.4% 277,025 300,515 8.5%
Net Interest Income 43,565 50,794 16.6% 164,756 190,396 15.6%
NIM (%)       3.3% 3.5%  
Other Income 29,760 34,962 17.5% 104,278 121,761 16.8%
Other Expense 28,791 31,073 7.9% 103,088 114,958 11.5%
Provisions and contingencies 7,137 13,447 88.4% 26,264 38,999 48.5%
Profit before tax 37,397 41,236 10.3% 139,682 158,200 13.3%
Tax 10,877 12,015 10.5% 41,576 46,445 11.7%
Profit after tax / (loss) 26,520 29,221 10.2% 98,106 111,755 13.9%
Net profit margin (%) 23.1% 22.9%   22.2% 22.8%  
No. of shares (m)         5,787.5  
Book value per share (Rs)*         139.0  
P/BV (x)         2.4  
* (Standalone book value as on 31st March 2015)

What has driven performance in FY15?
  • Asset quality woes marred the performance of ICICI Bank in FY15, which is otherwise back by a healthy growth rate in advances particularly retail loans. The deposit book too grew on the back of higher CASA proportion and shielded margins despite pressure on yields.

  • On the assets side, ICICI Bank has kept the proportion of corporate and SME loans in check. Hence most of the incremental lending was to the retail segment. There may be further upside in margins (NIMs) with a possibility of fall in interest costs.

    Loan growth focus shifts from corporate to retail
      FY14 % of total FY15 % of total Change
    Advances 3,387,030   3,875,220   14.4%
    Retail 1,302,074 36.2% 1,627,592 42.0% 25.0%
    Corporate 1,104,172 32.6% 1,162,566 30.0% 5.3%
    SME 155,803 4.6% 174,385 4.5% 11.9%
    International 900,950 26.6% 910,677 23.5% 1.1%
    Deposits 3,317,092   3,615,630   9.0%
    CASA 1,429,391 43.1% 1,643,800 45.5% 15.0%
    Term deposits 1,887,700 56.9% 1,971,830 54.5% 4.5%

  • Asset quality woes, particularly in terms of loan restructuring, continued to haunt ICICI Bank in FY15. The gross NPAs (non performing assets) in absolute terms have gone up by 45% over the past 12 months. The gross NPA as a share of loan book stood at 3.3% as against 2.6% in FY14. Net NPAs rose to 1.4% of advances in FY15, from 0.8% in FY14. The gross NPAs in retail loan portfolio stood at 3.2% of advances as against 3.4% in March 2014. The NPA coverage ratio stood at 58.6%, which is very low according to us.

  • Fee income (up 12% YoY) constituted 33% of ICICI Bank's total income in FY15 as against 35% in FY14.

  • Lower the direct marketing costs helped ICICI Bank bring down the cost to income ratio to 37% in FY15 from 38% in FY14. The return on equity however remained subdued at 15% at the end of FY15.
What to expect?
At the current price of Rs 328, the stock is trading at a multiple of 1.8 times our estimated FY17 consolidated adjusted book value (excluding insurance businesses). The bank's performance has been in line with our estimates with regard to profit growth. However that is essentially due to lower costs and higher net interest margins. Moreover the slippage in asset quality remains high. While growth will continue at a muted pace in the near term, ICICI Bank is well capitalized to take advantage of lending opportunities as and when the economy picks up.

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. We recommend investors to not buy the stock at current valuations.

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