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634940986984490399 634940986984490399 Document Transcript

  • 17 January 2013 Update | Sector: Financials ICICI Bank Set for the next leap Alpesh Mehta (Alpesh.Mehta@MotilalOswal.com); + 91 22 3982 5415 Sohail Halai (Sohail.Halai@motilaloswal.com) +91 22 3982 5430
  • ICICI Bank ICICI Bank : Set for the next leap Page No. Summary ............................................................................................................ 3 Story in charts................................................................................................ 4-5 Core RoE on the upswing - expect 17%+ by FY15E ...................................... 6-8 RAM improves decisively: RoE improvement on the cards ...................... 9-13 Consistently delivering on asset quality................................................... 14-16 Gradual improvement in margins to continue ........................................ 17-18 CASA ratio improves 1.7x since FY08 ........................................................ 19-21 Loan growth revives – retail loan to gather momentum ....................... 22-23 Healthy core operations; RoA's improved decisively .............................. 24-27 Financials and valuation ........................................................................... 28-29 Investors are advised to refer through disclosures made at the end of the Research Report. 17 January 2013 2
  • 17 January 2013 Update | Sector: Financials ICICI Bank BSE Sensex S&P CNX 19,964 6,039 Bloomberg ICICIBC IN Equity Shares (m) 1,152.8 M.Cap. (INR b)/(USD b) 1,359/24 52-Week Range (INR) 1,210/762 1,6,12 Rel.Perf.(%) -2/7/27 2013E 2014E 2015E NII 138.0 168.0 201.5 OP 131.4 162.5 194.8 NP 81.3 100.2 120.6 NIM (%) 3.0 3.2 3.2 EPS (INR) 70.5 86.9 104.6 EPS Gr. (%) 25.8 23.2 20.3 BV/Sh. (INR)* 454.3 510.8 578.6 ROE (%) 14.6 16.1 17.2 ROA (%) 1.6 1.7 1.7 Payout (%) 30.0 30.0 30.0 Valuations P/E (x) 16.5 13.4 11.1 P/BV (x) 2.1 1.9 1.6 Adj P/ABV (x) 2.2 1.9 1.6 *BV adjusted for investment in susbdiaries, Prices adj for sub value TP: INR1,400 Buy Set for the next leap Expect earnings CAGR of 23%+; Rising RoEs to drive more re-rating   Valuation summary (INR b) Y/E March CMP: INR1,163   ICICI Bank (ICICIBC) is expected to deliver EPS CAGR of 23%+ over FY12-15E, on a higher base of 25%+ over FY10-12, driving up the core RoE from ~10% in FY10 to 17%+ in FY15E. Importantly, the Tier 1 would remain strong at 10%+ at end-FY15. With a market share of 4.2% in the domestic loans and largest branch network in the private financials, above industry growth and favorable margins will drive earnings. ICICIBC has managed the asset quality well during the last 18 months of pain in the Indian economy. While FY14 will be critical to see the fate of few large exposures, the bank is confident of tiding over this without any dent on its profitability. Recovery in Indian economy / corporate capex will be viewed positive for ICICIBC. Valuations for ICICIBC will evolve as it delivers RoE improvement over the next 2 years (to come at the near sector averages). Importantly, it will have scope to further boost its leverage as capital may get boost from return of capital by key subsidiaries. Subsidiaries transform from being guzzlers to capital providers to parent ICICIBC has not infused any capital in its subsidiaries for the past three years. Corrective measures and consolidation has led to significant CRAR improvement for ICICI UK and ICICI Canada. Presently, most of the bank's subsidiaries have become self-sufficient. In the medium term, listing of life insurance business [capital support of INR49b (our estimate) under Basel III] and repatriation of capital from international subsidiaries will reduce capital charge ensuring dilution-free growth. Core operations improve decisively, core RoE to reach 17%+ by FY15E Shareholding pattern % As on Dec-12 Sep-12 Dec-11 Promoter 0.0 0.0 0.0 Dom. Inst 24.8 25.3 27.8 Foreign 66.5 65.8 61.8 Others 8.7 8.9 ICICIBC's risk adjusted margins (RAM) have improved sharply from a low of 1% in FY10 to 2.2% in FY12, led by a 95bp fall in credit cost and 25bp by margins improvement. Despite lower growth in fee income, continuous margin improvement (~50bp over FY12-15) and strong asset quality performance will translate into strong RoA's of ~1.7% and core RoE is expected to improve to 17%+. 10.4 Significant improvement in asset quality in challenging times Stock performance (1 year) Even in challenging times, ICICIBC exhibited strong performance in asset quality, with GNPA percentage declining over the past 10 quarters and provision coverage ratio increasing from 53% in FY09 to 79% in 1HFY13. With retail delinquencies at its historic lows credit cost estimates of average 70bp over FY13E-15E, compared to 40bp in FY12, is conservative and factors the higher stress in corporate portfolio leaving lower downside risk to our estimates. Structural changes to ensure higher return ratios; valuation attractive Return ratios are on an upward trajectory and structurally core operations of ICICIBC has improved significantly, which would enable it to sustain the ratios. Further unlocking of value from subsidiaries could lead to re-rating of the stock. ICICIBC trades at near five-year average valuation, which is unwarranted considering expected improvement in growth and RoE. Maintain Buy. 3
  • ICICI Bank Story in charts Core operations have improved decisively...  Sharp improvement in liability profile and...  … Better risk management and focused growth (secured loans)…  … is Yielding results now; margins have improved  … and credit cost is coming down  Cutting excess flab helped to improve/maintain ROA…  … despite being dragged down by fees; expect contribution to stabilize structurally  Sharp improvement in CASA ratio, 1.7x since FY08  Asset quality showing sharp improvement  Focused strategies leading to sharp improvement in NIM…  … and fall in credit cost  Lean cost structure now - Adopted branch banking model  Fees growth expected to track balance sheet growth Source: Company, MOSL 17 January 2013 4
  • ICICI Bank Story in charts ... increasing leverage to boost RoEs  Core operations driving ROAs improvement….  …. Improving leverage will lead to core ROE of 17%+ by FY15  Subsidiaries adequately capitalized; unlikely to need  … capital repatriation and stake sale in insurance to lead to improvement in Tier I in FY15  Trading at near LPA multiple expect re-rating as RoE's evolve over next 2 years capital anytime soon…  NIM and Credit cost driving ROA higher  RoE on an upward trajectory  Investment in subsidiaries likely to decline  BASEL III: Adequately capitalized till FY15 For illustrative purpose only, capitalization under BASEL III.  With a better RoE, PE below LPA; PBV at LPA Source: Company, MOSL 17 January 2013 5
  • ICICI Bank Core RoE on the upswing - expect 17%+ by FY15E Subsidiaries: From capital guzzlers to capital providers for lending business    ICICIBC's core operations have turned around and RoA has improved to 1.5%+ in FY12 led by 1) higher margins, 2) sharp fall in credit cost and 3) control over opex. However, core RoE improvement was restricted to just 13% due to strong capitalization (Tier I ratio 12.5%+). Improving margins are likely to compensate for any uptick in credit cost. Fee income growth is expected to track balance sheet growth and as the benefit of correcting operating inefficiencies is already reaped, fees and opex are unlikely to contribute meaningfully to RoA improvement. Overall, we expect core RoA to improve to 1.7%+. As ICICIBC would continue to leverage, core RoE is expected to improve to 17%+ by FY15E. Subsidiaries have become self-sufficient in funding their own growth. From being capital guzzlers, they would provide capital to fund the bank’s core lending business. Moderation in growth and higher capital requirement brought RoEs lower Cumulative capital infusion over FY06-08 was of INR305b (~50% of existing net worth) Though over FY03-05, ICICIBC reported an average RoE of ~20%, frequent dilutions (FY05, FY06 and FY08) and consolidation in balance sheet over FY08-10 (post asset quality issue in FY08) lowered the core RoE to 10% in FY10. The bank raised INR32.5b, INR78.2b and INR194b in FY05, FY06 and FY08 respectively taking the cumulative capital infusion to INR305b (~50% of existing net worth). The need to raise capital was 1) to support domestic business growth and 2) enhance capital in subsidiaries (investment of INR100b over FY06-10). International subsidiaries adequately capitalized; Repatriation to boost capitalization Repatriation of capital would give a benefit of INR14b to Tier I under current Base II norms and INR28b under Basel III ICICIBC has not infused any capital in the international banking subsidiaries for the past three years. Decline in balance sheet, lower MTM losses and internal accruals led to significant improvement in capital adequacy ratios for ICICI UK and ICICI Canada from 17.3% and 23.4% in FY10 to 33.6% and 34.1% in 2QFY13. ICICI Eurasia's CAR also stands comfortable at 35%. With moderate growth plans for Canada and the UK subsidiaries, ICICIBC mulls to repatriate excess capital from these subsidiaries. Once capital is brought back into the parent company, it shall not only translate to higher RoEs for international subsidiaries but also provide cushion to parent Capitalization. The bank can potentially repatriate at least half of the capital ie US$350m from the UK and CAD$500m from Canada. Thus, almost INR42b can be repatriated. On a standalone basis, ICICIBC deducts 50% of the invested capital (i.e INR28b) in Canada and UK Subs from Tier I capital and rest from Tier II capital. With repatriation (assuming 50%), it would eventually give a benefit of INR14b to Tier I under current Base II norms and INR28b under Basel III (whereby the entire investment in a subsidiary has to be deducted from Tier I capital). 17 January 2013 6
  • ICICI Bank ... and capital gains from ICICI Prulife will keep capitalization healthy Under Basel III, overall Tier I capital addition is likely to be INR49b (INR41b capital gains plus INR8.2b deducted from Tier I) from insurance stake sale Listing of the insurance venture too shall bring capital for the bank. Based on our current estimates, it can almost bring INR49b (based on FY15E) potential capital to ICICIBC. Of this, INR41b would be capital gains which will be directly added to net worth and Tier I capital. Currently, the principal amount of INR8.2b (for 23% stake) is deducted from Tier I and Tier II capital both in equal proportion. But under Basel III, the entire amount would be deducted from Tier I. Hence, under Basel III, overall Tier I capital addition is likely to be INR49b (INR41b capital gains plus INR8.2b deducted from Tier I) in FY15E. Unlikely to raise capital till FY16E, unless growth outlook revives sharply Adequately capitalized till FY16 Under Basel III, the bank is likely to take a capital charge of ~100bp, mainly due to higher deduction of investment in subsidiaries. Repatriation of capital and reduction in ICICI Prulife’s stake could lead to addition of ~INR41b to net worth and release of INR36b capital charge while calculating CAR (under Basel III). Hence, we believe ICICIBC is unlikely to raise capital till FY16. Our base case assumption factors ~20% CAGR in risk weighted assets, insurance stake sale in FY15E and repatriation of capital from the UK and Canadian subsidiaries. Addition to Tier I capital of INR41b due to insurance stake sale Basel III: Adequately capitalized at least till FY16E (INR m) FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 Assets 3,633,997 4,062,337 4,736,471 5,295,169 6,293,773 7,532,673 9,039,207 10,847,049 13,016,459 Growth 12 17 12 19 20 20 20 20 RWA 2,941,810 3,414,980 3,985,858 4,561,919 5,548,117 6,790,891 8,149,070 9,778,884 11,734,660 As a % of Assets 81 84 84 86 88 90 90 90 90 RoA 1.1 1.3 1.5 1.6 1.7 1.7 1.7 1.7 1.7 Payout 33 31 29 30 30 30 30 30 30 Tier I Capital 410,620 449,750 505,183 566,595 568,292 724,248 818,042 930,595 1,065,658 Deductions 123,696 118,882 108,531 99,891 163,221 124,082 124,082 124,082 124,082 Investments in subs 64,116 65,412 65,831 65,831 131,661 95,022 95,022 95,022 95,022 Securitisation 36,170 23,590 13,640 5,000 2,500 0 0 0 0 DTA and Others 23,410 29,880 29,060 29,060 29,060 29,060 29,060 29,060 29,060 Tier I Capital 14.0 13.2 12.7 12.4 10.2 10.7 10.0 9.5 9.1 Tier I under Basel II Guidelines 11.2 Impact of Basel III (in bp) 99 Note: For illustrative purpose only Source: Company, MOSL Impact of higher deduction is 1% on Tier I capital 17 January 2013 Lower deduction on account of insurance stake sale of INR8b and capital repatriation of INR28b 7
  • ICICI Bank Frequent equity dilution for growth and capital requirement of subsidiaries (INR b) Incremental capital infusion in subsidiaries (INR b) FY07 FY08 FY09 FY10 FY11 FY12 ICICI Pru Life Ins Equity dilution of 17.2 2 19. 16.3 6.6 12.1 8.6 - - - ICICI Lombard Gen Ins. 0.7 5.5 3.0 - 2.5 - ICICI Pru AMC 0.5 - - - - - ICICI Ventures - - - - - - ICICI Securities - 2.4 - - - - 3.0 5.0 3.1 - - - - 17.7 - - - - 4.0 9.5 20.0 - - - ICICI Home Finance ICICI Bank UK ICICI Bank Canada Overall Investments 14.8 52.2 34.7 - 2.5 - % of Netowrth 6.1 11.2 7.1 - 0.5 - Networth 244 466 490 516 551 596 Source: Company, MOSL 22% of the networth invested in to subsidiaries (INR b) Expect proportion of investment in subsidiaries (as a % of overall networth) to come down (%) Business growth and profitability declined over FY08-10 (%) Expect core RoE to reach 17%+ Source: Company, MOSL 17 January 2013 8
  • ICICI Bank RAM improves decisively: RoE improvement on the cards Tight control on opex compensated for muted fee income growth    ICICIBC’s risk adjusted margin (RAM) has improved sharply from a low of 1% in FY10 to 2.2% in FY12, of which 95bp is led by a sharp fall in credit cost (due to fall in proportion of unsecured personal loans and credit cards and strong asset quality performance in corporate segment). Addressing structural issues in the balance sheet and improvement in liability profile led to a improvement in NIMs of 25bp over FY10-12. Cutting excess flab in the system drove down cost to core income ratio to ~43% from highs of 58% in FY07. Overall core PBT (core operating profit less NPA provisions) as a percentage to average assets has improved to 1.9%+ in FY12 v/s 95bp over FY08-10. Despite a challenging scenario to generate fee-based income, further improvement in margins and healthy asset quality performance would keep core PBT strong over FY12-15E. Sharp improvement in core profitability driven by focused strategies Increase in credit cost impacted profitability. Consolidation for structural improvement in balance sheet became a key mantra. ICICIBC shifted its focus from aggressive growth (at times sacrificing profitability) and market share to improving profitability even at the cost of growth. Over FY08-10, sharp increase in slippages and moderate growth led to higher credit cost of 1.7%, against an average of 0.5% over FY04-07, whereby RAM moderated to 1% in FY10 v/s 1.4% in FY07. While margins continued to improve post FY08 (NII/average asset improved from 1.9% in FY07 to 2.2% in FY10) led by an improvement in liability profile, moderation in growth and benefit of capital raising, higher credit cost kept RAM low at less than 1.3% over FY08-10. To improve core operating profitability, management adopted the following strategies: (A) Unsecured retail loans trimmed to improve asset quality Unsecured proportion of loans declined from ~10% (INR220b) to ~1.3% (INR35b) at end-FY12 To build a healthy loan portfolio and resolve asset quality issues, ICICIBC reworked its strategy by running down unsecured retail loan portfolio in favor of low-risk secured loans and corporate loans. Thus, unsecured proportion of retail loans declined from 9.8% (INR220b) in FY08 to ~1.3% (INR35b) at end-FY12. A shift in portfolio mix towards secured loans, tighter risk management practices and business loan sourcing via owned branches instead of DSAs led to better credit appraisal and improvement in asset quality. Hence, even in a phase of economic moderation, GNPAs declined from 4.6% in FY10 to 3.1% at end-2HFY13, while NNPAs were down sharply to 66bp, against 1.9%. De-risking loan portfolio by reducing proportion of unsecured loans Credit cost declined sharply (%) Credit cost remained high over FY08-10 due to higher NPAs provision coupled with contracting balance sheet. Benign asset quality in retail segment and higher proportion of secured loans led to strong asset quality performance over the past 8 quarters. 17 January 2013 9
  • ICICI Bank (B) Structural issues in balance sheet effectively dealt with Focus on improving CASA and reducing ALM mismatches yielded results Lower CASA ratio, higher ALM mismatches (both domestic and overseas book), rising share of international loans and overall aggressive growth leading to higher PSL requirements etc kept margins lower till FY07 for ICICIBC, despite sharp increase in high yielding unsecured retail loans. During the liquidity crisis period, margins fell sharply due to higher roll-over cost of bulk deposits. Even aggressive growth in the past, which led to risky underwriting, backfired leading to higher NPAs and interest reversal. To improve margins, management focused on (a) improving CASA ratio (up from 26% in FY08 to 40%+) and (b) reducing ALM mismatches. Strategies worked and NIMs improved by 25bp despite higher NPAs in unsecured retail loans. Share of CASA ratio improved significantly (%) CASA deposits improved while loans declined in FY10 (INR b) Continuous improvement in NII to average assets (%) Margins remained in a narrow range of 2.1-2.3% over FY08-10. A sharp improvement in CASA ratio during the consolidation phase led to structurally higher NIMs even as the bank reduced its high-yielding unsecured loan portfolio Source: Company, MOSL Proportion of working capital finance rise; mismatches reduced considerably ALM improved significantly as bank reduced its dependence on short term bulk deposits 17 January 2013 ICICIBC had a mismatched ALM in FY08, with 65%+ of deposits maturing within a year, corresponding to only ~30% of loans maturing within the same period. However, it increased the proportion of working capital finance to the corporate segment and reduced exposure to short term bulk deposits, which resulted in a well-matched ALM. Hence, the share of deposits maturing within a year declined to 48% in FY12, while share of loans maturing within a year was stable at 29%. 10
  • ICICI Bank ALM Profile: Gap in less than one year bucket reduced considerably FY07 < 1 1yr yr 3 yr Deposits Borrowings Advances Investments 68.9 41.3 28.1 54.7 29.2 30.9 39.0 17.1 >3 yrs 1.9 27.8 32.9 28.1 FY08 < 1 1yr yr - 3 yr 64.8 41.7 30.7 57.0 33.2 26.9 34.3 18.7 >3 yrs 2.0 31.4 35.0 24.3 FY09 < 1 1yr yr - 3 yr 65.8 32.5 24.0 42.4 33.5 35.7 40.6 25.3 >3 yrs 0.7 31.8 35.3 32.3 FY10 < 1 1yr yr - 3 yr 48.0 27.1 32.0 43.4 51.0 32.1 39.4 24.5 >3 yrs 1.0 40.7 28.6 32.1 FY11 < 1 1yr yr 3 yr 44.1 34.1 30.7 35.6 52.2 20.9 41.1 26.7 >3 yrs FY12 < 1 1yr yr - 3 yr >3 yrs 3.7 48.1 27.0 24.9 45.0 46.4 12.4 41.2 28.2 29.2 41.1 29.7 37.7 44.7 15.4 40.0 Source: Company, MOSL (C) Focus on shedding excess flab; shift from agency model to branch banking Despite the sharp increase in branch network and addition of Bank of Rajasthan over FY08-12, other operating expenses to average assets ratio declined to 100bp, against 163bp in FY08 Of the 5C’s strategy introduced in FY08, improving cost efficiency was one of the bank’s key focus areas. In the process, ICICIBC moved from an agency model to branch banking to increase utilization of branches and tighten its risk management practices. This also gave an opportunity to reduce opex as commission to DMA, which formed 25% of other operating expenditure, was significantly brought down to just 4% of other opex. During FY08-12, operating expenses were largely flat, led by an 8% CAGR decline in other operating expenses. Despite the sharp increase in branch network and addition of Bank of Rajasthan over FY08-12, other operating expenses to average assets ratio declined to 100bp, against 163bp in FY08 (DMA expenses which formed 40bp of average assets is now negligible). Strong control over opex… (%) ICICIBC derived significant gains from transiting to branch banking model as against agency model adopted earlier … despite rapid branch expansion is commendable (nos) Addition of 822 branches* Bank continues to grow organically as well as inorganically. Branch network is 2x+ FY08 Addition of 507 branches Addition of 154 branches Addition of 291 branches *Out of which 450 was on account of Bank of Rajasthan merger 17 January 2013 Addition of 213 branches Source: Company, MOSL 11
  • ICICI Bank Cost to average assets best among peers Cost to core income ratio improved from ~58% in FY07 to 43% in FY12, while cost to average assets ratio declined from 2.2% in FY07 to 1.8% in FY12 (compared to 280bp for HDFCB and 230bp for AXSB) – the best among peers. The lower cost to average assets ratio is partially led by higher share of international business (25%), compared to peers. Sharp improvement in cost to core income ratio (%) Cost to average assets ratio compared to peers (%) Domestic cost to core income ratio is at 47%, in our view While the cost to average assets ratio increased for peers over FY09-12, ICICIBC reported a sharp improvement and is now the best among peers. Moderation in balance sheet growth; core profitability improved sharply... FY08-10: opex control helped maintain RoA. FY10-12: Sharp reduction in credit cost drove RoAs high As mentioned earlier, ICICIBC effectively used the consolidation in business growth phase (during FY08-10) to improve its balance sheet profile, address structural ALM issues, improve risk management practices (credit cost declined to 40bp in FY12, against 1.2% in FY08), shed excess flab in the system (cost to average asset ratio of 1.8% v/s 2.2% in FY08), reduce the risk on international subs books and for branch expansion. Combination of these factors led to a sharp improvement in core profitability, whereby RoA improved to 1.5% v/s 1.1% in FY10, despite pressure on trading gains and fee income. NIMs and opex control led to stable RoA (%) Asset quality and margins drive RoA (%) Blue indicates positive contribution to RoA; Black indicates negative carry on RoA's 17 January 2013 Source: Company, MOSL 12
  • ICICI Bank …despite fee income being a drag on RoA Fee income CAGR over FY08-12 was near zero, compared to balance sheet growth of 4.5%+ over the same period. Thus, fee income to average assets ratio gradually declined from 1.8% in FY08 to 1.5% in FY12 and dragged RoA lower. Deceleration in balance sheet (especially retail loans), decline in commission from distribution of third party products and challenging macro environment (lower syndication and capital market related fees) led to muted fee income performance over FY08-12. Fee income growth continues to lag loan growth Deceleration in balance sheet and decline in commissions led to lower fee income growth Fee income expected to improve over FY13E-15E Fee income to average assets ratio lower compared to peers – scope for improvement (%) FY04-08 FY09-12 1.7 1.5 1.6 1.8 1.7 1.8 1.7 1.4 ICICIBC FY13-15E 1.3 HDFCB AXSB Source: Company, MOSL 17 January 2013 13
  • ICICI Bank Consistently delivering on asset quality Estimate credit cost of 70bp over FY13-15E    Lower share of unsecured personal loans coupled with improved risk management practices has helped ICICIBC to show a continuous improvement in asset quality (GNPAs percentage declining over the past 10 quarters) even in a challenging macro environment. Retail delinquency is at its historic lows leading to lower credit cost. ICICIBC has utilized this opportunity to shore up its provision coverage ratio from 53% in FY09 to 79% in 1HFY13. We are factoring a credit cost of 70bp in the overall portfolio for FY13E. Of which, if we assume credit cost of 50bp on corporate loan portfolio (given very low delinquency in retail and international portfolio) and with a 75% PCR, it implies net slippage ratio of 1.75%, which is fairly conservative in our view. While some stress in the large corporate segment may emanate, historic performance of managing stress accounts viz. Kingfisher and Deccan Chronicle and lower restructured loan portfolio should be given due credit. We estimate credit cost to increase to an average of 70bp over FY13E-15E, compared to 40bp in FY12. However, it would be offset by higher NIMs and RAM is expected to remain healthy at 2.4%+ over FY13-15E v/s 2.2% in FY12. Cushion built by improving PCR; Healthy asset quality performance Improvement in asset mix, better risk management practies led to fall in GNPAs Aggressive growth in unsecured segment (over FY04-08) followed by moderation in economic growth exerted pressure on asset quality, with the slippage ratio increasing to 2.6% over FY09/10, against an average of 1.8% during FY04-08. Overall GNPAs posted 26% CAGR rise over FY07-10, led by 28% CAGR in retail segment GNPAs. However post FY10, improved risk management practices and sharp reduction in unsecured personal loans helped bank to show a continuous improvement in asset quality (GNPA % declining over past ten quarters). And to provide adequate cushion to the balance sheet, bank prudently increased its provision coverage ratio from 51% in 2QFY10 to 79% (one of the best in the industry) which provides comfort. In our view, benign asset quality trend in the retail segment and cautious approach adopted would keep ICICIBC’s asset quality healthy. Consistent improvement in asset quality amidst tough macro Net slippage ratio declined sharply over FY10-12 Source: Company, MOSL 17 January 2013 14
  • ICICI Bank Strong growth in corporate segment over FY09-12 Increase in infrastructure and power segment has raised concerns; performance so far better than expectation While overall loans clocked a CAGR of 5% over FY09-12, higher growth came from domestic corporate segment (CAGR of 30%+ over FY09-12), and its share in overall loans increased from 12% at end-FY08 to 23% at end-FY12. International portfolio and SME CAGR over FY09-12 was at just 8% and 15% respectively. On a sector-wise analysis, key growth drivers for ICICIBC over FY09-12 were 1) power (~38% CAGR and now forms 5.4% of overall loans), 2) infrastructure (24% CAGR and now forms 6.9% of overall loans) and 3) services – finance (26% CAGR and now forms 6% of overall loans). Due to challenging macro environment and infrastructure related issues, strong growth in corporate segment (especially power and infrastructure) remains a risk. However, asset quality performance so far increases confidence. Sector-wise GNPAs exhibits healthy trend FY12 (INR m) Services- Non Finance Infrastructure Iron/steel and products Services – finance Food and beverages Power Chemical and fertilizers Wholesale/retail trade Electronics and engineering Construction Mining FY09 194,810 181,960 122,310 156,410 67,790 141,240 34,980 50,060 56,610 57,970 84,030 7.5 4.2 4.4 3.5 2.4 2.4 2.3 1.2 1.6 1.1 0.0 % of overall loans FY10 FY11 7.2 5.5 4.6 3.4 3.3 3.0 2.5 2.4 1.7 1.0 0.2 7.7 5.8 4.2 7.2 3.1 4.4 1.3 2.3 2.0 1.6 1.8 FY12 CAGR over FY09-12 FY09 7.4 6.9 4.7 6.0 2.6 5.4 1.3 1.9 2.2 2.2 3.2 5 24 7 26 8 38 -12 24 16 34 329 0.2 N.A. 0.4 1.7 1.9 0.3 3.8 5.6 2.2 N.A. N.A. % GNPA FY10 FY11 0.3 N.A. 1.7 3.8 2.6 0.2 5.3 4.9 2.2 N.A. N.A. Source: FY12 0.2 0.2 N.A. N.A. 0.2 0.8 1.4 0.7 4.1 3.9 0.2 0.1 7.0 4.5 7.4 4.2 1.5 4.2 N.A. N.A. N.A. N.A. Company, MOSL Power projects in which ICICIBC participated have a DSCR of 1.5x+ and the average break-even PLF is ~60%. Of the total power sector exposure, ~30-35% is in the nature of working capital facilities. Of the project finance exposure, ~65% is covered by PPAs. Of the total project finance facilities to thermal power generation sector, ~4550% of the exposure is based on captive coal. Thus, stress remains manageable. Healthy performance in retail and international portfolios Credit cost of 125bp on corporate/other loan portfolio and with an assumption of 75% PCR, it implies net slippage ratio of 1.7%, which is conservative in our view 17 January 2013 Retail delinquency is at its historic lows and is also evident in performance of some peers viz. HDFCB and IIB which are predominantly a retail lender. While credit cost on retail portfolio would be negligible for FY13, we factor credit cost of 70bp (in line with management guidance) for the overall portfolio for FY13. Lower credit cost on retail loans is also driven by healthy recoveries from written off retail accounts in the past. The international portfolio (25% of overall) is also exhibiting strong performance. Thus, estimated credit cost would largely (assuming 50bp of 70bp) pertain to domestic corporate/other loans (40% of overall). This implies credit cost of 125bp on corporate/ other loan portfolio and with an assumption of 75% PCR, it implies net slippage ratio of 1.7%, which is conservative in our view. 15
  • ICICI Bank Proactive recognition of NPAs; lower restructured loans ICICIBC’s handling of some stress accounts viz. Kingfisher and Deccan Chronicle (proactively recognized and provided 85% on the same) and lower restructured loans (1.5% of overall loans) should be given due credit. If stress in the environment continues, then slippages are bound to increase (though manageable considering performance so far) and have been adequately factored. We assume credit cost at an average of 70bp over FY13E-15E, compared to 40bp in FY12. However, it would be offset by higher NIMs and RAM is expected to remain healthy at ~2.4% over FY12-15E. Proporation of restructured loans remains low Credit cost contained even as bank continues to shore up PCR 76.6 (%) RAM at 5-year high… Risk adjusted margin (%) …and strong performance is expected to continue Risk adjusted margin (%) RAM improves sharply by 170bp, from its bottom, and at 5-year high. Strong asset quality performance coupled with structural improvement in NIMs led to higher RAM Source: Company, MOSL 17 January 2013 16
  • ICICI Bank Gradual improvement in margins to continue ALM in better shape    Structural improvement in liability profile (CASA ratio improved to 40%+ in FY12 v/s 26% in FY08) and lower securitization losses drove NIMs from 2.2% in FY08 to 2.7% in FY12 and 3% in 1HFY13 – domestic NIMs are much higher at 3.4% at end-2QFY13. In the backdrop of ICICIBC winding up high yielding unsecured loans (now 1.3% of overall loans, against ~9.8% in FY08) in favor of lower yielding corporate and secured loans, NIMs performance becomes more commendable. With higher CASA ratio at 40%+, well-matched ALM, no securitization losses and stable/ falling share of international loans with relatively higher margins than past, overall margins are expected to improve in FY13E-15E. We expect FY13E NIMs to be higher at 3% and improve further 3.2% over FY14E-15E. Focus on core liabilities; CASA growth maintains pace on a higher base Benefit of improved liability profile will continue One of the key success factors to improve bank’s margins has been the drastic improvement in liability profile. We believe improvement in CASA ratio has been a key driver for margin improvement and has also negated the impact of falling proportion of high yielding unsecured retail loan. With balance sheet growth resuming, we believe further improvement in CASA ratio is unlikely; however, strong branch expansion and technology upgradation would help ICICIBC to keep the CASA growth pace in line with overall balance sheet growth. Winding up of margin-dilutive unsecured loan book behind With unsecured loan book at ~1.3% of the overall loan book, the pace of decline in high-yielding loans is largely behind. Further, NPAs from unsecured retail loans also led to higher accumulation of non-interest bearing assets in the balance sheet. As the large write-offs have already taken place and asset quality is showing positive trend, we believe it shall provide a cushion to margins. Securitization losses to decline, leading to margins improvement of 5bps In FY13E, securitization losses are expected to be negligible and thus would further aid margins expansion. ICICIBC had aggressively securitized its retail loan portfolio over FY04-07 and with an increase in delinquency ratio, securitized losses increased. Over FY08-11, the bank booked losses on securitization of INR5b per year, which had a negative impact of ~15bp on margins; losses declined to INR2b in FY12 and the negative impact on margins was 5bp. In FY13E, securitization losses are expected to be negligible and thus would further aid margins expansion. ALM issues resolved in international balance sheet International margins to improve further 17 January 2013 International margins have already bounced back to 1.4% in 1HFY13, against an average of ~85bp in FY11 and 1.25% in FY12. While further improvement would be a challenge, if maintained at similar levels going forward, it would translate into 15bp improvement in international NIMs over FY13 and provide a cushion to global margins. 17
  • ICICI Bank Higher margin domestic business to grow faster than international business ICICIBC has identified secured retail loans and domestic corporate loans as the key focus area for growth. Management is not very optimistic on growth in the international portfolio. Growth in retail loans has already started showing traction and domestic corporate growth remains strong driven by working capital requirements. In our view, for every 5% change in the mix, reported margins shall show an improvement of 10bp in overall margins. Structurally moving to higher NIMs (%) Both domestic and international NIMs have improved significantly (%) With an improvement in liability profile, CoF increase has been Margins at historically high level but expected restricted, thus providing a cushion to margins (%) to improve further (%) Source: Company, MOSL 17 January 2013 18
  • ICICI Bank CASA ratio improves 1.7x since FY08 Branch expansion and use of superior technology to keep CASA ratio healthy    Over FY08-12, while CASA CAGR was 15%, overall deposits were flat leading to higher CASA ratio of 40%+ in FY12 as against 26% in FY08. Strong branch additions over the past two years, increasing branch productivity and qualitative balance sheet growth would keep CASA ratio strong at 39%+. With ~15% of the branch network less than 18-24 months old (excluding the branches from merger of BoR), incremental contribution from these branches are expected to increase significantly as they ride through the cycle of maturity. CASA growth remains healthy; CASA ratio improves 1.7x since FY08 Strong branch additions over the past two years, increasing branch productivity and qualitative balance sheet growth led to strong CASA ratio of 39%+ ICICIBC was in a consolidation mode over FY08-10 to realign its liability profile by aggressively shedding short term bulk deposits and increasing thrust on CASA mobilization. Over FY08-12, CASA CAGR was 15%, while overall deposits were flat and provided fillip to CASA ratio which increased from 26% in FY08 to 40%+ in FY12. If we see in isolation, term deposits at end-FY12 were still lower by ~19% than that in FY08, which demonstrated the bank’s key focus to build a strong balance sheet rather than chase growth. Strong branch additions over the past two years, increasing branch productivity and qualitative balance sheet growth could keep CASA ratio strong at 39%+. Aggressive shedding of bulk deposits and thrust on CASA… (%) …provided strong boost to CASA ratio Source: Company, MOSL Impressive traction in SA deposits, 2x rise in branch network to provide fillip We expect SA deposits accretion to remain healthy at a CAGR of 17% over FY12/15. 17 January 2013 With a revamp in its deposit-taking strategy, ICICIBC started refocusing on the branch banking model instead of agency model followed earlier. Coupled with it, an increase in branch network by 2x+ over FY08 to 2,700+ helped it increase the proportion of retail deposits in its book. SA deposits’ growth rebounded sharply to ~28% over FY10/ 11, against 5% in FY09 (though partially led by the financial crisis). Consequently, percentage of SA deposits to total deposits increased to 30%, against 16% in FY08. We expect SA deposits accretion to remain healthy at a CAGR of 17% over FY12/15. 19
  • ICICI Bank SA deposit growth remains healthy Sharp rise in proportion of SA deposits in overall deposits (%) SA deposit growth lower than peers, but should be seen in the context of lower balance sheet growth as well (%) (SA deposit growth) (Balance sheet growth) Source: Company, MOSL Maturing branch network to aid CASA mobilization Incremental contribution from new branches are expected to increase significantly as they ride through the cycle of maturity Due to a strong expansion in branch network, ICICIBC’s CASA per branch declined from INR734m in FY07 to INR420m in FY12 and remained low compared to AXSB’ INR607m and HDFCB’s INR527m. We note that the high difference in CASA per branch is due to CA per branch, while the difference in SA deposit per branch is lower, with SA deposits per branch for ICICIBC at INR288m per branch as against INR326m for HDFCB and INR343m for AXSB. With nearly ~15% of the branch network less than 1824 months old (excluding branches from merger of BoR), incremental contribution from these branches are expected to increase significantly as they ride through the cycle of maturity. Further, the bank has guided for balance sheet growth to be in line with industry/marginally above industry average, which should help it sustain a CASA ratio at ~40%. Merger of Bank of Rajasthan (BoR): ICICIBC merged BoR which had a branch network of 463 and total business of INR230b with itself in August 2010. Over 60% of 463 BoR’s branches were in the state of Rajasthan which would provide ICICIBC a strong hold in that region. Compared to ICICIBC, erstwhile BoR’s branches were grossly underutilized. BoR’s business per branch was INR505m, compared to ICICIBC’s INR2.2b. With concentrated presence in northern India, ICICIBC would be able to benefit in the longer time horizon. 17 January 2013 20
  • ICICI Bank Strong branch expansion and moderation in business led to decline in CASA per branch (INR m) CASA per branch low against peers’ expect improvement (INR m) Bank resorted to organic and inorganic expansion Branch addition remain strong (addition during the year) CA CAGR o o GR f 30 % f 22% * HDFC merger with CBOP; # ICICIBC merger with Bank of Rajasthan 17 January 2013 Source: Company, MOSL 21
  • ICICI Bank Loan growth revives – retail loan to gather momentum Higher capitalization to ensure dilution-free growth    After a period of consolidation over FY08-10, the bank resumed on the growth path with a loan CAGR of 18% over FY10/12. Initial phase of growth was driven by domestic corporate loans (+36%); but in the past few quarters, retail segment too picked up with the entire secured segment in retail showing signs of improvement. Further, a drag on overall loans due to winding up of unsecured loans would be lower, with its proportion to overall loans now being insignificant. For FY12-15E, domestic loan growth is expected to post a CAGR of 20%+ and international loan portfolio is expected to clock a CAGR of 15%. This would be supported by strong capitalization, with CAR at 19% (of which Tier I is at 12.5%+). Further repatriation of capital from subsidiaries and release of capital from insurance venture shall ensure dilution-free growth till FY16E. Domestic loan CAGR to remain healthy at 20%+ over FY12-15E The near term loan growth driver would be corporate loans however an increasing momentum in all segments of secured retail portfolio is positive Post consolidation over FY08-10, ICICIBC’s trend on the growth path was led by a strong growth in corporate segment, which reported a CAGR of ~36% over FY10-12 compared to overall loan growth of 18%. The other key drivers for growth were SME (36%+, albeit on a lower base) and CV loans (higher share of bought portfolio 19%+). While the near term driver would continue to be corporate loans (working capital loans and disbursements from past sanctions), increasing momentum in all segments of secured retail portfolio is positive. We expect domestic loan CAGR to be at 20%+ over FY12-15E. Growth in international segment is likely to be opportunistic and we factor 5% growth in FY13E and to be largely in line with overall growth for FY14E/15E. Loan growth improves, expect to be in line with industry average Expect share of retail loans to stabilize (%) Post consolidation, ICICIBC resumed on the growth path led by a growth in corporate segment Source: Company, MOSL Decline in share of retail loans to overall loans likely to be arrested Retail loans to grow 1718% over FY12/15, against 5% CAGR over FY10-12 17 January 2013 Led by higher repayments/writeoffs, retail loans declined by 15% CAGR over FY09-12 and at end-2QFY13 it formed ~34% of the overall loans, against 58% in FY08. Within the retail segment, unsecured retail loan registered the sharpest fall of 40%+ over FY09-12. However, in the past three quarters, loan book has stabilized indicating the 22
  • ICICI Bank negative drag of it on overall loans seems to be limited in the future. Within retail, growth in housing loan and auto/CV loan resumed to ~15% YoY in 1HFY13 (against a decline of ~33% over FY08-10). We expect retail loans to grow 17-18% over FY12/15, against 5% CAGR over FY10-12. Growth in retail segment moderates (YoY, %) Decline in unsecured personal loan has been arrested (%) Drag on retail growth due to unsecured retail proportion behind, while housing and auto loan growth has improved in YTDFY12. With a reversal in interest rate cycle and management focus, expect it to improve further Source: Company, MOSL 17 January 2013 23
  • ICICI Bank Healthy core profitability; RoA's improved decisively Valuations at LPA; will evolve as RoE's improve over next two years    Structural drivers for strong core operations (1) margin improvement (2) stable cost to average assets and (3) healthy asset quality performance (though factored higher credit cost) should enable bank to deliver core PBT of 2% - highest in last decade. Fee income growth though is expected to improve, is conservatively factored in at lower than balance sheet growth (CAGR of 13% v/s balance sheet CAGR of 17%), leading to negative carry on RoA's. RoA's have improved decisively and with increasing leverage, core RoE to improve to 17%+ by FY15E. Further, with stock trading at LPA, we expect valuations to evolve as growth visibility improves and RoE's increase. Structural improvements to aid core operating profit; NIMs expected to remain healthy, to drive core operating profit In our view, structural drivers for strong operations are in place and the bank would maintain core operating profit at 190bp+ over FY13E-15E. Though expected improvement in NIMs and stable credit cost shall drive core operating profit, continued pressure in fee income would negate the benefit to some extent. Further cushion to RoA would be provided by improved contribution from non-core income (trading gains and dividend from subs), which is expected to improve from just 18bp in FY12 to 30bp+ by FY15E. Core PBT (as a % of average assets) to remain healthy Despite moderation in risk adjusted core income, strong control on opex kept core profitability healthy over FY08-10. Further increase was led by strong improvement in RAM Source: Company, MOSL Excess flab already shed; fee income growth to improve and its drag on RoA to reduce Factoring in fee income growth of 18% in FY14/15 , however with recovery in macro-economic environement, corporate fees could provide upside 17 January 2013 Commendable performance over cost helped the bank absorb impact of lower RAM and muted fee income growth, thus keeping core-PBT largely stable at 90bp over FY08-10. However, in our view, ICICIBC has utilized the benefit of cost reduction and it is unlikely to drive RoA higher. With increasing branch presence, growing share of retail business and higher employee base, we assume operating expense to register 17% CAGR over FY12-15E. However, cost to average assets ratio is expected to remain stable at ~1.8% over FY13E/15E. 24
  • ICICI Bank Fee income to average assets, cost to average assets ratios expected to remain stable ICICIBC has utilized the benefit of cost reduction and it is unlikely to drive RoA higher Source: Company, MOSL Valuations will evolve as RoE's improve over next two years RoA's have improved decisively and increasing leverage would be a key for RoE improvement While RoA's has improved decisively to 1.5%+, lower leverage restricted improvement in RoE. The bank has a CAR of 18.3%, with Tier I at 12.8%, which implies it is currently under-leveraged (core) at 9.5x, compared to 11.x for HDFCB and 12.6x for AXSB. Going forward, balance sheet size is expected to post a CAGR of 16%+ over FY12/15E and we expect core leverage to increase to 11x. Increasing leverage would drive RoE's higher to 17%+. Further, with ICICIBC trading at near LPA BV multiple, we expect valuations will evolve as bank continue to deliver higher RoE's. Maintain Buy with a TP of 1,400. ICICI Bank: SOTP FY15E ICICI Bank Total Value INR b 1,334 Key Ventures ICICI Pru Life Insurance ICICI Bank Canada (100% Subsidiary) ICICI Bank UK (100% Subsidiary) ICICI Home Finance (100% Subsidiary) ICICI Pru Asset Management (51% stake) ICICI Securities ICICI Lombard General Insurance (74% stake) ICICI Ventures ICICI Securities PD Total Value of Ventures Less: 20% holding Discount Value of Key Ventures Target Price Post 20% Holding Co. Disc. Current Value Upside - % Target Price w/o 20% Holding Co. Disc. CMP (INR) Upside - % 159 52 34 32 19 14 19 10 10 348 70 278 1,612 1,341 20.3 1,682 1,341 25.4 Total Value per Value Share USD b INR 24.3 1,157 2.9 0.9 0.6 0.6 0.3 0.3 0.3 0.2 0.2 6.3 1.3 5.1 29.4 24.5 20.3 30.7 24.5 25.4 138 45 29 28 16 12 16 9 9 302 60 241 1,399 1,163 20.3 1,459 1,163 25.4 % of Total Value Rationale 82.7 2x FY15E BV ex Investment in key ventures; Implied 12.4x core EPS 9.8 3.2 2.1 2.0 1.2 0.9 1.2 0.6 0.6 21.6 4 17.3 100 Apprisal Value; 74% Economic stake 1x FY15E BV 1x FY15E BV 2x FY15E BV Valued at 4% of Total AUM exp in FY15 12x FY15E PAT 1x FY15 Networth 10% FY15E AUMs 1x FY15 Networth Source: MOSL 17 January 2013 25
  • ICICI Bank RoA improvement to be driven by core operating performance (%) Y/E March FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13E FY14E FY15E Net Interest Income Fee income Core Operating Income Operating Expenses Employee cost Other operating expenses Core operating Profits Non Core Other Income Operating Profits NPA provisions Other Provisions Provisions PBT Tax RoA 1.92 1.11 3.03 2.42 0.47 1.95 0.61 1.53 2.14 0.40 0.10 0.50 1.64 0.23 1.41 2.13 1.50 3.64 2.51 0.50 2.01 1.13 0.89 2.02 -0.08 0.38 0.29 1.73 0.36 1.37 1.86 1.65 3.51 2.39 0.52 1.87 1.12 0.73 1.86 0.38 0.00 0.38 1.48 0.27 1.21 1.89 1.68 3.57 2.24 0.54 1.70 1.33 0.64 1.97 0.48 0.27 0.75 1.22 0.18 1.04 1.96 1.78 3.74 2.19 0.56 1.63 1.55 0.59 2.14 0.68 0.10 0.78 1.36 0.24 1.12 2.15 1.67 3.82 1.81 0.51 1.30 2.01 0.28 2.29 0.96 0.01 0.98 1.31 0.35 0.96 2.19 1.52 3.71 1.58 0.52 1.06 2.13 0.49 2.62 1.17 0.01 1.18 1.44 0.36 1.08 2.34 1.67 4.01 1.72 0.73 0.99 2.29 0.06 2.35 0.51 0.08 0.59 1.76 0.42 1.34 2.44 1.52 3.96 1.78 0.80 0.99 2.18 0.18 2.36 0.23 0.13 0.36 2.00 0.53 1.47 2.75 1.39 4.14 1.82 0.83 1.00 2.32 0.30 2.62 0.36 0.04 0.40 2.22 0.60 1.62 2.90 1.42 4.32 1.84 0.84 1.00 2.48 0.33 2.80 0.38 0.06 0.43 2.37 0.64 1.73 2.91 1.40 4.32 1.81 0.84 0.97 2.51 0.31 2.82 0.38 0.06 0.44 2.37 0.63 1.74 DuPont Comparison with peers (%) Axis Bank Average FY04-07 FY08-12 1) 2) 3) 4) 5) Net Interest Income 2.4 Fee income 1.2 Fee to core Income 34.1 Core operating Income 3.6 Operating Expenses 1.9 Cost to Core Income 53.3 Employee cost 0.6 Other operating expenses 1.3 Core Operating Profits 1.7 Trading and others 0.6 Operating Income 2.2 Provisions 0.5 NPA provisions 0.4 Other Provisions 0.1 PBT 1.7 Tax 0.6 Tax Rate 34.2 RoA 1.1 3.0 1.8 37.4 4.8 2.3 47.8 0.8 1.5 2.5 0.4 2.9 0.6 0.5 0.1 2.2 0.8 34.2 1.5 FY13-15E 3.2 1.8 36.1 4.9 2.3 45.5 0.8 1.4 2.7 0.3 3.0 0.5 0.5 0.1 2.5 0.8 32.5 1.7 HDFC Bank Average FY04-07 FY08-12 3.7 1.6 30.4 5.3 2.5 48.2 0.7 1.8 2.7 0.0 2.7 0.7 0.6 0.1 2.0 0.6 30.5 1.4 4.3 1.8 29.3 6.1 3.1 50.3 1.2 1.9 3.1 0.1 3.2 1.0 0.7 0.3 2.2 0.7 31.5 1.5 FY13-15E 4.1 1.7 29.3 5.8 2.7 45.4 1.1 1.6 3.2 0.1 3.3 0.5 0.4 0.1 2.8 0.9 31.6 1.9 ICICI Bank Average FY04-07 FY08-12 2.0 1.5 43.2 3.4 2.4 69.6 0.5 1.9 1.0 0.9 2.0 0.5 0.3 0.2 1.5 0.3 17.0 1.3 FY13-15E 2.2 2.9 1.6 1.4 42.4 33.0 3.8 4.3 1.8 1.8 47.2 42.9 0.6 0.8 1.2 1.0 2.0 2.4 0.3 0.3 2.4 2.7 0.8 0.4 0.7 0.4 0.1 0.1 1.6 2.3 0.4 0.6 24.1 26.8 1.2 1.7 Source: Company, MOSL Comments 1): NII to average assets has improved, but remains low compared to peers due to higher share of international portfolio. Domestic margins are at ~3.4%. Comments 2): Fee income contribution to RoA lower than peers. Faster than expected economic recovery, leverage on strong corporate relationship and improving growth in retail loan would gradually improve fee income contribution Comments 3): Strong control on opex resulting in best-in-class cost to average asset ratio Comments 4): Strong asset quality performance over past two years is commendable Comments 5): RoAs has improved decisively and is now best in the class 17 January 2013 26
  • ICICI Bank ICICIBC: One-year forward PBV and RoE ICICIBC: One-year forward PE and RoA ICICIBC: One-year forward PBV ICICIBC: One-year forward PE 17 January 2013 27
  • ICICI Bank Financials and Valuation Income Statement NII CAGR of 23%+ over FY1315E on back of higher margins and improving loan growth Fee income growth to improve On a higher base, PAT CAGR of 23% over FY12-15 (INR Million) Y/E March 2010 Interest Income 257,069 Interest Expended 175,926 Net Interest Income 81,144 Change (%) -3.0 Other Income 74,777 Net Income 155,920 Change (%) -2.4 Operating Exp. 58,598 Operating Profits 97,322 Change (%) 9.0 Provisions & Cont. 43,869 PBT 53,453 Tax 13,203 Tax Rate (%) 24.7 PAT 40,250 Change (%) 7.1 Dividend (Including Tax) 15,020 Core PPP* 85,512 Change (%) 0.8 *Core PPP is (NII+Fee income-Opex) 2011 259,741 169,572 90,169 11.1 66,479 156,648 0.5 66,172 90,475 -7.0 22,868 67,607 16,093 23.8 51,514 28.0 18,170 92,625 8.3 2012 335,427 228,085 107,342 19.0 75,028 182,369 16.4 78,504 103,865 14.8 15,830 88,034 23,382 26.6 64,653 25.5 21,228 103,995 12.3 2013E 404,434 266,458 137,977 28.5 84,902 222,879 22.2 91,484 131,395 26.5 20,008 111,387 30,075 27.0 81,313 25.8 28,541 125,895 21.1 2014E 456,258 288,261 167,997 21.8 101,331 269,328 20.8 106,877 162,450 23.6 25,194 137,257 37,059 27.0 100,197 23.2 35,169 154,950 23.1 2011 15,018 11,518 3,500 539,391 554,409 550,909 2,256,021 11.7 1,016,465 20.7 1,092,043 159,864 4,062,337 340,901 1,346,860 11.4 2,163,659 19.4 47,443 163,475 4,062,337 2012 15,028 11,528 3,500 592,525 607,552 604,052 2,555,000 13.3 1,110,194 9.2 1,398,149 175,770 4,736,471 362,293 1,595,600 18.5 2,537,277 17.3 46,147 195,154 4,736,471 2013E 15,028 11,528 3,500 645,297 660,324 656,824 2,980,269 16.6 1,240,225 11.7 1,461,891 192,684 5,295,169 393,353 1,715,270 7.5 2,945,821 16.1 45,571 195,154 5,295,169 2014E 15,028 11,528 3,500 710,325 725,352 721,852 3,595,791 20.7 1,451,924 17.1 1,742,093 230,538 6,293,773 484,987 1,972,561 15.0 3,555,546 20.7 46,495 234,185 6,293,773 Balance Sheet Strong capitalization to ensure dilution free growth SA growth to remain healthy at 17%+ over FY13/15 and CASA ratio to be strong at 39%+ Loan growth to improve led by healthy growth in domestic operations Y/E March Share Capital Equity Share Capital Preference Capital Reserves & Surplus Net Worth Of which Equity Net Worth Deposits Change (%) Of which CASA Deposits Change (%) Borrowings Other Liabilities & Prov. Total Liabilities Current Assets Investments Change (%) Loans Change (%) Net Fixed Assets Other Assets Total Assets (INR Million) 2010 14,649 11,149 3,500 505,035 519,684 516,184 2,020,166 -7.5 842,158 34.4 939,136 155,012 3,633,997 388,737 1,208,928 17.3 1,812,056 -17.0 32,127 192,149 3,633,997 Asset Quality GNPA (INR m) NNPA (INR m) GNPA Ratio NNPA Ratio PCR (Excl Technical write off) E: MOSL Estimates 17 January 2013 2015E 544,608 343,127 201,481 19.9 118,395 319,876 18.8 125,093 194,784 19.9 30,732 164,052 43,474 26.5 120,578 20.3 42,323 187,284 20.9 2015E 15,028 11,528 3,500 788,580 803,608 800,108 4,394,202 22.2 1,699,998 17.1 2,058,712 276,151 7,532,673 599,633 2,268,445 15.0 4,334,655 21.9 48,918 281,022 7,532,673 (%) 94,807 38,411 5.1 2.1 59.5 100,343 24,074 4.5 1.1 76.0 94,753 18,608 3.6 0.7 80.4 101,527 19,526 3.4 0.7 80.8 115,520 24,599 3.2 0.7 78.7 135,970 31,768 3.1 0.7 76.6 28
  • ICICI Bank Financials and Valuation Ratios Gradual improvement in margin to continue, domestic margin at historical high of 3.4%+ in 2QFY13 RoA's has improved decisively to 1.6%+, increasing leverage to boost RoE's to 17%+ Cost to income ratio expected to decline gradually Adequately capitalized till FY16 Y/E March Spreads Analysis (%) Avg. Yield - Earning Assets Avg. Yield on loans Avg. Yield on Investments Avg. Cost-Int. Bear. Liab. Avg. Cost of Deposits Interest Spread Net Interest Margin 2010 2011 2012 2013E 2014E 2015E 7.9 8.7 5.8 5.2 5.5 2.7 2.5 7.7 8.3 6.2 4.8 4.7 2.9 2.7 8.5 9.4 6.6 5.7 5.9 2.8 2.7 8.9 10.1 6.7 5.8 6.3 3.1 3.0 8.6 9.6 6.7 5.4 5.9 3.2 3.2 8.6 9.6 6.7 5.6 5.8 3.0 3.2 8.0 9.6 1.1 68.4 48.0 9.7 11.5 1.3 65.3 42.4 11.3 12.8 1.5 68.0 41.1 13.1 14.6 1.6 65.9 38.1 14.7 16.1 1.7 63.2 37.6 16.0 17.2 1.7 63.0 37.0 40.7 32.9 99.8 9.8 41.7 42.6 72.4 9.0 43.0 44.8 81.6 11.1 42.1 45.3 88.9 13.1 40.8 45.8 98.8 15.1 40.0 46.2 112.8 17.1 89.7 41.7 59.8 56.6 19.4 14.4 95.9 45.1 59.7 47.6 19.5 13.2 99.3 43.5 62.5 54.5 18.5 12.7 98.8 41.6 57.6 53.3 17.6 12.2 98.9 40.4 54.9 57.6 15.8 11.2 98.6 38.7 51.6 58.3 14.2 10.3 Book Value (INR) 463.0 BV Growth (%) 5.1 Price-BV (x) ABV (for Subsidaries) (INR) 353.6 ABV Growth (%) 6.6 Price-ABV (x) ABV (for Subs Invst & NPA) (INR) 329.5 Adjusted Price-ABV (x) EPS (INR) 36.1 EPS Growth (%) 6.9 Price-Earnings (x) Adj. Price-Earnings (x) Dividend Per Share (INR) 12.0 Dividend Yield (%) E: MOSL Estimates 478.7 3.4 516.6 7.9 2.3 408.6 10.2 2.4 397.3 2.5 56.1 25.4 20.7 17.5 16.5 1.4 562.4 8.9 2.1 454.3 11.2 2.1 442.5 2.2 70.5 25.8 16.5 13.7 21.2 1.8 618.8 10.0 1.9 510.8 12.4 1.9 495.8 1.9 86.9 23.2 13.4 10.9 26.1 2.2 686.7 11.0 1.7 578.6 13.3 1.6 559.3 1.6 104.6 20.3 11.1 9.4 31.4 2.7 Profitability Ratios (%) RoE Adjusted RoE RoA Int. Expended/Int.Earned Other Inc./Net Income Efficiency Ratios (%) Op. Exps./Net Income* Empl. Cost/Op. Exps. Busi. per Empl. (INR m) NP per Empl. (INR lac) * ex treasury Asset-Liability Profile (%) Loan/Deposit Ratio CASA Ratio % Invest./Deposit Ratio G-Sec/Invest. Ratio CAR (BASEL II) Tier 1 Valuation Trading at near LPA P/BV, with evolving RoE's over next two years valuations should improve; Top Pick 17 January 2013 370.6 4.8 356.0 44.7 23.9 14.0 29
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