ICICI Bank. Source: Company Data; PL Research

Transcription

1 Asset quality worries peaked; guidance gives optimism April 27, 2015 Nitin Kumar Pritesh Bumb Rating BUY Price Rs302 Target Price Rs390 Implied Upside 29.1% Sensex 27,177 Nifty 8,214 (Prices as on April 27, 2015) Trading data Market Cap. (Rs bn) 1,745.8 Shares o/s (m) 5, M Avg. Daily value (Rs m) Major shareholders Promoters 0.00% Foreign 41.01% Domestic Inst % Public & Other 37.22% Stock Performance (%) 1M 6M 12M Absolute (3.9) (3.9) 19.0 Relative (2.9) (5.5) (0.8) How we differ from Consensus EPS (Rs) PL Cons. % Diff Price Performance (RIC:ICBK.BO, BB:ICICIBC IN) (Rs) Apr-14 Jun-14 Aug-14 Source: Bloomberg Oct-14 Dec-14 Feb-15 Apr-15 ICICI Bank (ICICIBC) reported Q4FY15 PAT at Rs29.2bn (in line with PLe) as strong revenue growth compensated for the guided deterioration in asset quality. GNPL/NNPL increased by 15% QoQ/31% QoQ, largely led by slippages from restructured assets. However, fresh restructuring surprised positively, driving ~9% QoQ decline in restructured book. The bank guided for a decline in stressed asset formation in FY16, while it aims for 18-20% loan growth (led by retail segment) and stable margins. Declining trend in NPL formation from standard loans, higher granularity in residual restructured book, coupled with positive management guidance and reasonable valuations makes us retain our BUY rating on the stock. NII growth on track; one-offs further boost total revenues: ICICIBC reported 16.6% YoY growth in NII led by better loan mix (retail growth remains strong), tax-reversal of ~Rs1bn and modest loan growth. The bank also benefitted from strong treasury gain (Rs7.26bn) and continued repatriation gains (Rs1.8bn) which further boosted revenue growth. NIMs have improved by 11bps QoQ to 3.57% (3.48% for FY15) though fee growth remained soft. Management guided for double-digit fee growth in FY16, led by further pick-up in retail fees. Asset quality disappoints; management affirms an improving outlook: Asset quality remained under stress, with GNPL/NNPL increasing by 15% QoQ/31% QoQ led by elevated slippages from restructured assets (~70% of fresh slippages came from restructured assets). Fresh restructuring surprised positively and management cited restructuring pipeline of Rs15bn. On the negative side - provisions increased by 88% YoY (~28% higher than PLe); however, the coverage ratio still declined by 496bps QoQ to 58.6%. Management cited that the o/s restructured portfolio is highly granular and will, thus, prevent any repeat of lumpy slippage, while the fresh NPL formation is showing an improving trend. Well-capitalised for growth; maintain BUY: ICICIBC is well-capitalized with Tier-I ratio of 12.8% and the given low-rate of capital burn management suggested that it won't need to raise capital for the next three years. We believe that improving asset quality trends along with robust subsidiary performance will enable ICICIBC to gradually re-rating from the current levels. We maintain BUY with PT of Rs390. Key financials ( Y/e March) E 2016E 2017E Net interest income (Rs m) 164, , , ,116 Growth (%) Operating profit (Rs m) 165, , , ,912 PAT (Rs m) 98, , , ,245 EPS (Rs) Growth (%) Net DPS (Rs) Profitability & Valuation E 2016E 2017E NIM (%) RoAE (%) RoAA (%) P / BV (x) P / ABV (x) PE (x) Net dividend yield (%) Source: Company Data; PL Research Q4FY15 Result Update Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision. Please refer to important disclosures and disclaimers at the end of the report

2 NII growth was good on the back of Rs1bn income tax refund and better mix of assets Core fee income improved on better retail fee traction (60% of fees), while treasury income remained high increasing other income by ~17% YoY Retail portfolio continues to drive overall loan growth and its share in overall loan mix has increased to ~42.5% Exhibit 1: Q4FY15: Asset quality disappoints on guided lines P & L (Rs m) Q4FY15 Q4FY14 YoY gr. (%) Q3FY15 QoQ gr.(%) Interest income 127, , , Interest expense 76,591 71, , Net interest income (NII) 50,794 43, , Treasury income 7,260 2, , Other income exc. Treasury 27,703 27, , Total income 85,757 73, , Operating expenses 31,074 28, , Staff expenses 12,988 12, , Other expenses 18,086 16, , Operating profit 54,683 44, , Core operating profit 47,423 39, , Total provisions 13,447 7, , Profit before tax 41,236 37, , Tax 12,016 10, , Profit after tax 29,220 26, , Balance Sheet (Rs m) Deposits 3,615,630 3,319, ,553, Advances 3,875,220 3,387, ,753, Profitability ratios NIM RoAA RoAE Stressed assets formation remained high, with fresh slippages increasing sharply to Rs32.6bn (Rs22.8bn in Q3FY15), of which, Rs22.5bn relapsed from restructured book Fresh restructuring came in lower at Rs12.5bn v/s management guidance of Rs25bn in Q3FY15. Currently, the pipeline stands at Rs15bn for FY16 Asset Quality Gross NPA (Rs m) 150, , , Net NPA (Rs m) 62,555 32, , Cum. Restructured assets 110, , ,520 (8.6) Gross NPL ratio Net NPL ratio Coverage ratio (1,005) 63.5 (496) Rest. Assets/ Total adv (27) 3.2 (37) Business & Other Ratios Low-cost deposit mix (110) Cost-income ratio (303) 36.3 (3) Non int. inc / total income Credit deposit ratio CAR (68) Tier-I April 27,

3 ICICI bank Q4FY15 Concall Highlights: Growth Outlook: Targeting loan growth of 18-20% in FY16 led by Retail growth of 25% YoY will continue to calibrate loan growth in domestic corporate book at 10-15%. Also looking for growth of 8-10% in overseas business. Bank expects growth in commercial business loans to improve as industrial activity improves. Balance Sheet: Domestic corporate growth in this segment was mainly from lending to AAA corporate & PSUs Overseas subs/branches business Have been lending to businesses of Indian origin overseas and domestic as well, while also lend to local corporate with linkages to India. Adjusted reserves by Rs9.3bn on providing for FITL for restructured loans created prior to Margins: According to management, refund from income tax of Rs1bn added 5-6bps to margins but overall margins have improved on mix change in the retail (margins improved 11bps QoQ). Bank believes margins can be sustained at 3.5% despite Base rate cut as deposit cost will start reducing with slight lag. Fees, Opex & Branches: Fee income Retail fees growth was strong and contributes 60% of fee income (unchanged from Q3FY15). Bank is targeting at a double-digit growth in fee income led by retail & MSME. Employees Attrition of 4,400 people in FY15 and the employee base stands at 67,857. Bank will look to add 5-7% to the employee count in FY16 in the rural & semi-urban branches. Branches Added 200 branches in Q4FY15 to reach branches. Will grow branches by 10% in FY16. Asset Quality: Outlook - Stressed assets accretion in FY16 should be lower than Rs80.8bn (incl. slippage from restructured) in FY15. Credit cost guidance of 90-95bps in FY16. April 27,

4 Stressed assets formation Slippages are from 1-2 lumpy accounts which have been shaky from last few quarters and were out of moratorium but were unable to pay. Slippage ratio from restructured has moved to 25% in FY15. Restructured loans Restructured Rs12.5bn of loans in Q4FY15 and have a pipeline of Rs15bn (for filed prior to Mar 31). Sold SMA-2 loan account of small exposure to ARC. Exhibit 2: Loan split and growth trends Loan Book Details Q4FY15 Q4FY14 YoY gr. (%) Q3FY15 QoQ gr.(%) Loan Book 3,875,220 3,387, ,753, Domestic Loan book 2,933,542 2,489, ,788, International Loan book 941, , ,637 (2.4) Retail Loan book 1,646,969 1,320, ,535, Domestic Corporate book 1,116,063 1,019, ,088, SME 170, , , Retail Loan book break-up Credit Card 39,527 33, , Personal Loans 69,173 39, , Vehicle loans 296, , , Home Loans 892, , , Others 296, , , Exhibit 3: Advances growth remains stable but deposits growth remain sluggish Exhibit 4: Core fee income growth saw some improvement but lags balance sheet growth 23.0% Advances growth YoY Deposits growth YoY 20.0% Core fees growth YoY 20.0% 15.0% 17.0% 14.0% 10.0% 11.0% 8.0% 5.0% 5.0% 0.0% -5.0% April 27,

5 Exhibit 5: Adjusted to income tax refund, margins continued to improve on asset mix change towards high yielding retail/sme Exhibit 6: Year end CASA ratio moves down, but average CASA remains steady 3.80% 3.60% 3.40% 3.20% 3.00% 2.80% 2.60% 2.40% 2.20% 2.00% NIM (%) 46.00% 45.00% 44.00% 43.00% 42.00% 41.00% 40.00% 39.00% 38.00% CASA (%) Exhibit 7: Stressed asset formation has gone up as % of loans in FY15 on high slippages, while FY14 had witnessed high restructuring FY14 FY15 Fresh Slippages 11,160 11,450 12,300 12,410 45,314 11,950 16,730 22,790 32,600 80,780 Fresh Restructuring 8,290 10,760 20,460 21,560 61,070 13,940 8,290 17,700 12,470 52,400 Stressed Asset Accretion 19,450 22,210 32,760 33, ,384 25,890 25,020 40,490 45, ,180 Slippages % of Loans (Ann.) 1.49% 1.42% 1.51% 1.48% 1.55% 1.39% 1.89% 2.47% 3.47% 2.38% Restructured % of Loans (Ann.) 1.13% 1.38% 2.52% 2.57% 1.80% 1.63% 0.90% 1.89% 1.29% 1.35% Stress asset accretion (Ann.) 2.61% 2.80% 4.03% 4.05% 3.35% 3.02% 2.79% 4.36% 4.76% 3.74% Exhibit 8: Asset quality has deteriorated sharply on higher slippages Exhibit 9:...thus driving up the credit cost 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Gross NPA (%) Net NPA (%) 1.6% 1.4% 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% Credit Cost April 27,

6 Exhibit 10: Our TP of Rs390 per share is derived on SOTP valuation of Bank and subs Sum of the parts valuation (Rs/share) Value per share (Rs) Holding (%) Multiple Basis FY17E ICICI Standalone x Avg of EVA & two-stage GGM 328 Subsidiaries / Others ICICI Bank UK 100 1x BV 4 ICICI Bank Canada 100 1x BV 5 Life insurance 74 14x NBAP + EV 33 General insurance 74 12x PAT 4 Asset management % AUM 5 Private equity PAT 2 Primary dealer x PAT 3 Investment banking x PAT 2 Home finance x ABV 3 Total subsidiaries' value 62 % contribution of Subsidiaries / Others 16.0 Total fair value per share 390 April 27,

7 Income Statement (Rs m) Int. Earned from Adv. 314, , , ,562 Int. Earned from Invt. 115, , , ,328 Others 11,932 15,738 19,183 23,267 Total Interest Income 441, , , ,157 Interest expense 277, , , ,041 NII 164, , , ,116 Growth (%) Treasury Income 7,654 NTNII 96, , , ,042 Non Interest Income 104, , , ,042 Total Income 546, , , ,199 Growth (%) Operating Expense 103, , , ,245 Operating Profit 165, , , ,912 Growth (%) NPA Provisions 22,523 32,952 36,582 44,197 Investment Provisions 711 Total Provisions 26,264 35,147 39,525 48,420 PBT 139, , , ,492 Tax Provisions 41,577 48,708 57,977 68,248 Effective Tax Rate (%) PAT 98, , , ,245 Growth (%) Balance Sheet (Rs m) Par Value No. of equity shares 5,775 5,775 5,775 5,775 Equity 11,550 11,550 11,550 11,550 Networth 732, , ,166 1,021,392 Adj. Networth 699, , , ,431 Deposits 3,319,137 3,886,709 4,648,504 5,675,823 Growth (%) Low Cost deposits 1,423,784 1,690,718 2,022,099 2,468,983 % of total deposits Total Liabilities 5,946,416 6,998,486 8,332,486 10,064,390 Net Advances 3,387,026 3,935,725 4,671,705 5,727,511 Growth (%) Investments 1,770,218 2,068,436 2,496,295 2,959,043 Total Assets 5,946,416 6,998,486 8,332,486 10,064,390. Quarterly Financials (Rs m) Y/e March Q1FY15 Q2FY15 Q3FY15 Q4FY15 Interest Income 117, , , ,385 Interest Expense 72,750 74,939 76,236 76,591 Net Interest Income 44,919 46,566 48,117 50,794 Non Interest Income 28,498 27,384 30,917 34,963 CEB 19,360 21,030 21,100 21,370 Treasury 3,880 1,370 4,430 7,260 Net Total Income 73,417 73,950 79,033 85,757 Operating Expenses 28,250 26,971 28,663 31,074 Employee Expenses 12,469 10,864 11,178 12,988 Other Expenses 15,781 16,107 17,485 18,086 Operating Profit 45,167 46,979 50,370 54,683 Core Operating Profit 41,287 45,609 45,940 47,423 Provisions 7,261 8,495 9,797 13,447 Loan loss provisions 8,495 9,797 Investment Depreciation Profit before tax 37,906 38,484 40,573 41,236 Tax 11,353 11,394 11,676 12,016 PAT before EO 26,553 27,090 28,897 29,220 Extraordinary item PAT 26,553 27,090 28,897 29,220 Key Ratios CMP (Rs) Equity Shrs. Os. (m) 5,775 5,775 5,775 5,775 Market Cap (Rs m) 1,745,850 1,745,850 1,745,850 1,745,850 M/Cap to AUM (%) EPS (Rs) Book Value (Rs) Adj. BV (100%) (Rs) P/E (x) P/BV (x) P/ABV (x) DPS (Rs) Dividend Yield (%) Profitability (%) NIM RoAA RoAE Efficiency Cost-Income Ratio (%) C-D Ratio (%) Business per Emp. (Rs m) Profit per Emp. (Rs lacs) Business per Branch (Rs m) 1,787 1,812 1,878 1,998 Profit per Branch (Rs m) Asset Quality Gross NPAs (Rs m) 105, , , ,211 Net NPAs (Rs m) 32,980 39,849 43,889 50,961 Gr. NPAs to Gross Adv. (%) Net NPAs to Net Adv. (%) NPA Coverage (%) April 27,

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