ICICI Bank: Stake Sale in Insurance Subsidiary Aids Bottomline

ICICI Bank declared the results for the second quarter of the financial year ended March 2018 (2QFY18). The bank has reported an 8.4% YoY growth in net interest income while net profits declined 8.2% YoY in 2QFY18. Here is our analysis of the results.

Performance summary

• Net interest income grows 8.7% YoY during 2QFY18 on the back of 6.3% YoY growth in advances.
• Net interest margins (NIM) improved marginally by 0.12% as compared to a year ago and stood at 3.27%. The NIMs could come under pressure going forward as the company shifts its focus on lending to higher rated corporates, wherein the yields are a tad lower.
• Net profits declined by 33.7% YoY in 2QFY18. However, profits of both the quarters involve exceptional items on account of reduction in stake in their subsidiaries.
• The gross non-performing asset (GNPA) stood at 7.87% during the quarter. This implies a reduction of 0.12% as compared to the preceding quarter. The Reserve Bank of India is yet to complete their audit on the book of the bank for FY17. There could be certain divergences which could come out post their inspection. This could possibly lead to a surge in their gross non-performing assets.
• The fresh slippages for the second quarter stood at Rs 46.74 billion as compared to Rs 49.76 billion in the preceding quarter. Of, the fresh slippages only 5% was from the watchlist as provided by the bank. The balance addition was largely on account of a large exposure in the oil & gas sector. The bank has guided for lower slippages in the current fiscal as compared to FY17. The slippages for FY17 stood at Rs 335.4 billion.
• Capital adequacy ratio (CAR) stood at 17.89% at the end of September 2017 as per Basel III norms.
  
  

  Financial Snapshot

  Rs (m)	2QFY17	2QFY18	Change	1HFY17	1HFY18	Change
  Interest income	136,394	135,771	-0.5%	269,697	270,362	0.2%
  Interest expense	83,861	78,680	-6.2%	165,578	157,373	-5.0%
  Net Interest Income	52,533	57,091	8.7%	104,118	112,989	8.5%
  Net interest margin (%)				3.15%	3.27%
  Other Income	91,197	51,862	-43.1%	125,489	85,742	-31.7%
  Other Expense	37,369	39,088	4.6%	71,100	77,033	8.3%
  Provisions and contingencies	70,827	45,029	-36.4%	95,972	71,117	-25.9%
  Profit before tax	35,534	24,836	-30.1%	62,536	50,581	-19.1%
  Tax	4,511	4,254	-5.7%	9,190	9,510	3.5%
  Profit after tax/ (loss)	31,023	20,582	-33.7%	53,346	41,072	-23.0%
  Net profit margin (%)	22.7%	15.2%		19.8%	15.2%
  No. of shares (m)*					6,416.8
  Book value per share (Rs)					160.2
  P/BV (x)*					1.9

  *Book value as on 30th September 2017

• The growth in the advances was led by retail advances. Retail loan advances grew by 18.7% in the second quarter of FY18. Beneath the retail loan advances, personal loans and credit cards grew by 40% and 36% respectively.
• The current quarter, contains profits aggregating to Rs 20.1 billion on account of sale of stake in ICICI Lombard General Insurance Company. While, 2QFY17 contained profits aggregating to Rs 56.8 billion on account of sale of stake in ICICI Prudential Life Insurance Company. Adjusting for these one-off's, there would have been a loss of 25 billion in 2QFY17. While, there would have been profits of 0.5 billion in 2QFY18.
  
  

  (Rs m)	1QFY17	% of total	1QFY18	% of total	Change
  Advances	4,494,270		4,640,750		3.3%
  Retail	2,085,341	46.4%	2,473,520	53.3%	18.6%
  Corporate	2,408,929	53.6%	2,167,230	46.7%	-10.0%
  Deposits	4,240,860		4,862,540		14.7%
  CASA	1,912,628	45.1%	2,382,645	49.0%	24.6%
  Term deposits	2,328,232	54.9%	2,479,895	51.0%	6.5%
  Credit deposit ratio	106.0%		95.4%

• With branch network of over 4,856 the bank has undoubtedly leveraged its franchise well and capitalized on CASA deposits. CASA deposits improved to 49.5% of overall deposits at the end of September 2017 as compared to 45.7% a year ago.