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ICICI Bank: Yet to recuperate - Views on News from Equitymaster
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ICICI Bank: Yet to recuperate
Oct 30, 2009

Performance summary
  • Interest income falls by 12% YoY in 1HFY10; advances drop by 14% YoY. Net interest margin improves to 2.5% due to higher CASA proportion.
  • Operating costs drop with cost to income ratio at 37% in 1HFY10 (547% in 1HFY09).
  • Capital adequacy ratio healthy at 17.7% in 1HFY10.
  • Net NPAs higher at 2.2% of advances in 1HFY10 (1.9% in 1HFY09).
  • Due to cost curtailment bottomline grows by 10% YoY in 1HFY10, despite lower fees and higher provisioning.

Standalone numbers
Rs (m) 2QFY08 2QFY10 Change 1HFY09 1HFY10 Change
Interest income 78,349 66,569 -15.0% 157,267 137,903 -12.3%
Interest Expense 56,873 46,208 -18.8% 114,894 97,690 -15.0%
Net Interest Income 21,476 20,361 -5.2% 42,373 40,213 -5.1%
Net interest margin (%)       2.2% 2.5%  
Other Income 18,773 18,237 -2.9% 34,155 39,136 14.6%
Other Expense 17,400 14,245 -18.1% 36,539 29,705 -18.7%
Provisions and contingencies 9,235 10,713 16.0% 17,160 23,949 39.6%
Profit before tax 13,614 13,640 0.2% 22,829 25,695 12.6%
Tax 3,471 3,239 -6.7% 5,406 6,511 20.4%
Profit after tax/ (loss) 10,143 10,401 2.5% 17,423 19,184 10.1%
Net profit margin (%) 12.9% 15.6%   11.1% 13.9%  
No. of shares (m)       1,113.3 1,113.6  
Book value per share (Rs)*         460.3  
P/BV (x)         1.7  
* Book value as on 31st September 2009

What has driven performance in 2QFY10?
    • Thanks to the eased liquidity scenario, ICICI Bank managed to do away with high cost domestic customer deposits and limited its overseas borrowings in the past quarter. Continuing in its attempt to avoid incremental delinquencies and conserve capital, the bank chose to marginally shrink its balance sheet in 1HFY09. Domestic retail and corporate loans together comprised 61% of the bank’s asset book in FY09 as against 73% at the end of FY09. Home loans and auto loans comprised 54% and 29% respectively of the retail loan portfolio.

      Although the bank lost nearly 11% of its deposits during this period, low cost deposits (CASA) continued to comprise 27% of ICICI Bank’s total deposits at the end of FY09. In case of borrowings, overseas borrowings comprised 63% of the bank’s total borrowings at the end of 1HFY10, as against 72% at the end of 1HFY09. The bank expects its retail and corporate assets to grow by 5% to 10% YoY in FY10. Higher CASA proportion helped improve the bank’s NIMs from 2.4% in 1HFY09 to 2.5% in 1HFY10.

      Risk averse structuring…
      (Rs m) 1HFY09 % of total 1HFY10 % of total Change
      Advances 2,219,850   1,908,600   -14.0%
      Retail 1,316,371 59.3% 858,870 45.0% -34.8%
      Corporate 299,680 13.5% 343,548 18.0% 14.6%
      Rural 162,049 7.3% 114,516 6.0% -29.3%
      SME 44,397 2.0% 76,344 4.0% 72.0%
      International 397,353 11.3% 515,322 27.0% 29.7%
      Total deposits 2,234,020   1,978,320   -11.4%
      CASA 669,140 30.0% 729,300 36.9% 9.0%
      Term deposits 1,564,880 70.0% 1,249,020 63.1% -20.2%
      Credit /Deposit 96.5%   99.4%    

    • The gross NPAs (non performing assets) in absolute terms have nearly doubled in ICICI Bank’s books in the past 12 months. The bank’s net NPAs (as percentage of total advances) increased to 2.2% in 1HFY10, from 2% in 1QFY10 and 1.9% in 1HFY09. The level of incremental delinquencies (slippages in asset quality) has been sequentially increasing every quarter for the past eight quarters.

    • The consolidated net NPA ratio was 1.7% for ICICI Bank at the end of FY09 and the bank stated that 55% of net retail NPA was from unsecured products. The NPA coverage ratio stood at 54%. ICICI Bank has restructured assets worth Rs 49 bn in 1HFY10.

    • Fee income constituted 36% of ICICI Bank’s total income in 1HFY10 as against 47% in 1HFY09. The 14% YoY growth in other income was, however, primarily due to higher treasury income and dividend from subsidiaries.

    • The bank has received licenses to set up additional 580 branches over the next few quarters. 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 (36% in 1HFY10).

    What to expect?
    At the current price of Rs 793, the stock is trading at a multiple of 1.8 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 off-balance sheet items and exposures to international assets, 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. Having said that, while the long term prospects of the bank appear good given the higher capital adequacy, strong retail penetration and relationship with the Indian corporates abroad, inability to sustain profitability and asset quality might prove detrimental. We believe that at the current price, the bank offers a high risk - moderate return proposition for the long term.

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Feb 23, 2018 (Close)


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