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ICICI Bank: Stake Sale in Insurance Subsidiary Aids Bottomline - Views on News from Equitymaster

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  • Nov 7, 2017 - ICICI Bank: Stake Sale in Insurance Subsidiary Aids Bottomline

ICICI Bank: Stake Sale in Insurance Subsidiary Aids Bottomline

Nov 7, 2017

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.
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