1. 4QFY2010 Result Update I Banking
April 23, 2010
ICICI Bank BUY
CMP Rs976
Performance Highlights Target Price Rs1,166
ICICI Bank’s net profit increased by 35.2% yoy, which was in line with our Investment Period 12 Months
estimates. The key positives from the results are a further improvement in CASA
to 41.7% and a declining trend in slippages from retail loans for four Stock Info
consecutive quarters, though we would have liked to see a higher balance
Sector Banking
sheet and network growth from this quarter. With a capital adequacy of 19.4%,
the Bank is well-positioned for balance sheet growth, though branch expansion Market Cap (Rs cr) 108,785
plans seem a tad slower than expected. Nonetheless, at the current levels, we
believe that the stock is trading at attractive valuations. Hence, we maintain a Beta 1.5
Buy on the stock. 52 WK High / Low 1,010/396
Transformation done, time to grow: Total deposits increased by 2.2% qoq Avg. Daily Volume 1,470,588
(declined by 7.5% yoy) to Rs2,02,017cr during 4QFY2010; advances Face Value (Rs) 10
increased by 1.1% qoq (a decline of 17.0% yoy) to Rs1,81,206cr. The
de-growth in advances was sharper-than-expected, especially after BSE Sensex 17,694
considering the strong uptick in systemic credit demand during 4QFY2010. Nifty 5,304
The sharp drop in the advances book was attributable to the repayments from
retail, and short-term corporate loans. The key positive from the results was Reuters Code ICBK.BO
the improvement in the Bank’s CASA ratio to 41.7%% (from 39.6% in
Bloomberg Code ICICIBC@IN
3QFY2010 and 28.7% in 4QFY2009). Although the deposit mix improved on
the liability-side, a sharper fall in advances growth resulted in an NII decline Shareholding Pattern (%)
of 5% yoy. The management has indicated that the branch network target for
FY2010 of 2,000 would be achieved by May-June 2010. The asset quality of Promoters -
the bank showed signs of stabilising, with gross slippages at Rs700cr, driven MF/Banks/Indian FIs 27.6
by a sharp declining trend in slippages in retail loans. The Gross NPA ratio of
the bank was up at 5.1% (as against 4.8% in 3QFY2010 and 4.3% in FII/NRIs/OCBs 66.1
4QFY2009), mainly on account of the ongoing contraction in the loan book. Indian Public 6.3
The RBI has extended the deadline to meet the coverage ratio requirement of
70% from September 2010 to March 31, 2011. Abs. (%) 3m 1yr 3yr
Sensex 4.9 58.9 27.0
Outlook and Valuation: At the CMP, the Bank’s Core Banking business (after ICICI Bank 16.1 130.3 6.4
adjusting Rs307 per share towards the value of the subsidiaries) is trading at
1.9x FY2012E ABV of Rs518. We value the Bank’s subsidiaries at Rs307 per
share of ICICI Bank and the core Bank at Rs862 (2.25x FY2012E ABV). We
maintain a Buy on the stock, with a Target Price of Rs1,169, implying an
upside of 20%.
Key Financials
Y/E March FY2009 FY2010E FY2011E FY2012E
NII 9,092 8,114 9,378 11,538
% chg 10.9 (10.8) 15.6 23.0
Net Profit 3,423 4,025 5,000 6,765
% chg (17.7) 17.6 24.2 35.3
NIM (%) 2.6 2.4 2.5 2.5
Vaibhav Agrawal
EPS (Rs) 30.7 36.1 44.8 60.7
Tel: 022 – 4040 3800 Ext: 333
P/E (x) 31.7 27.0 21.8 16.1
E-mail: vaibhav.agrawal@angeltrade.com
P/ABV (x) 2.2 2.2 2.0 1.9
Amit Rane
RoA (%) 0.9 1.0 1.1 1.3
Tel: 022 – 4040 3800 Ext: 326
RoE (%) 9.2 9.6 11.5 15.0
E-mail: amitn.rane@angeltrade.com
Source: Company, Angel Research
1
Please refer to important disclosures at the end of this report Sebi Registration No: INB 010996539
2. ,
ICICI Bank I 4QFY2010 Result Update
Exhibit 1: 4QFY2010 Performance
Y/E March (Rs cr) 4QFY2010 3QFY2010 % chg (qoq) 4QFY2009 % chg (yoy) FY2010 FY2009 % chg
Interest Earned 5,827 6,090 (4.3) 7,530 (22.6) 25,707 31,093 (17.3)
Interest Expenses 3,792 4,031 (5.9) 5,391 (29.7) 17,593 22,726 (22.6)
Net Interest Income 2,035 2,058 (1.1) 2,139 (4.9) 8,114 8,367 (3.0)
Non-Interest Income 1,891 1,673 13.0 1,674 13.0 7,478 7,604 (1.7)
Total Income 3,926 3,731 5.2 3,813 3.0 15,592 15,970 (2.4)
Operating Expenses 1,527 1,362 12.1 1,657 (7.9) 5,860 7,045 (16.8)
Pre-Prov. Profit 2,399 2,369 1.3 2,155 11.3 9,732 8,925 9.0
Provisions & Cont. 990 1,002 (1.2) 1,085 (8.7) 4,387 3,808 15.2
PBT 1,409 1,367 3.1 1,071 31.6 5,345 5,117 4.5
Prov. for Taxes 404 266 51.9 327 23.3 1,320 1,359 (2.8)
PAT 1,006 1,101 (8.7) 744 35.2 4,025 3,758 7.1
EPS (Rs) 9.0 9.9 (8.8) 6.7 35.0 36.1 33.8 6.9
Cost to Income (%) 38.9 36.5 43.5 37.6 44.1
Effective Tax Rate (%) 28.6 19.4 30.6 24.7 26.6
Net NPA (%) 2.1 2.4 2.1 2.1 2.1
Source: Company, Angel Research
Advances de-grow more-than-expected
The total deposits of the bank increased by 2.2% qoq (declined by 7.5% yoy) to
Rs2,02,017cr during 4QFY2010, while the advances increased by 1.1% qoq
(declined by 17.0% yoy) to Rs1,81,206cr. The de-growth in advances was sharper-
than-expected, especially considering the strong uptick in systemic credit demand
during 4QFY2010. The sharp drop in the advances book was attributable to the
repayments from retail, and short-term corporate loans.
Exhibit 2: Trend in Advances & Deposits
Rs '000 cr
300,000
250,000
200,000
150,000
100,000
50,000
0
Deposits Advances
FY2008 FY2009 FY2010
Source: Company, Angel Research
April 23, 2010 2
3. ICICI Bank I 4QFY2010 Result Update
Exhibit 3: Loan Book Mix 4QFY2010
Rural
10%
Retail
43% Overseas
25%
Corporate
18%
SME
4%
Source: Company, Angel Research
Exhibit 4: Retail Loan Book Mix 4QFY2010
Credit Cards Other
5% 2%
Personal
6%
Vehicle
27% Home
60%
Source: Company, Angel Research
The proportion of Retail loans in the overall loan mix came down from 49% in
4QFY2009 to 43%, driven by a reduction of 32%, 49% and 48% yoy in the vehicle
loan, personal loan and credit card segments, respectively, due to ongoing
repayments and negligible new disbursements. In the retail segment, the Bank has
indicated that, going forward, the focus will mainly be on Home loans and Car
loans. Other than that, the bank expects a strong growth from project finance and
corporate loan segments. During FY2010, the bank’s corporate portfolio increased
by 49.4% yoy to Rs32,617cr, forming 18% for the total loans (12% in 4QFY2009).
Strong CASA Growth
The key positive from the results was the improvement in the Bank’s CASA ratio to
41.7% (from 39.6% in 3QFY2010 and 28.7% in 4QFY2009). During 4QFY2010,
the bank registered a further reduction in term deposits by about Rs1,630cr
sequentially (de-growth of 24.3% yoy). At the same time, the bank was able to
garner substantial CASA deposits of Rs5,994cr (34.4% yoy and 7.7% qoq growth).
The Current deposits grew by 43.3% yoy and 14% qoq, and constituted 15.3% of the
total deposits. Savings deposits grew by 29.7% yoy and 4.3% qoq, and formed
26.4% of the total deposits. Although the deposit mix improved on the liability-side,
a sharper fall in advances growth resulted in an NII decline of 5% yoy.
April 23, 2010 3
4. ICICI Bank I 4QFY2010 Result Update
Exhibit 5: Delivering on CASA and Cost control
60
50
40
30
20
10
0
CASA Ratio Cost-to-income Ratio
FY2008 FY2009 FY2010
Source: Company, Angel Research
Exhibit 6: Trend in Reported NIMs (%)
2.7
2.6
2.5
2.4
2.3
2.2
2.1
2.0
3QFY2008
4QFY2008
1QFY2009
2QFY2009
3QFY2009
4QFY2009
1QFY2010
2QFY2010
3QFY2010
4QFY2010
Source: Company, Angel Research
Branch Expansion while keeping costs in check
The management has indicated that the branch network target for FY2010 of 2,000
would be achieved by May-June 2010. During FY2010, the bank opened 303
branches, leading to a 21% branch expansion during the year. At the same time,
operating expenses have remained firmly in check, with the management
consistently delivering on its articulated objective of cost savings without
compromising on branch expansion.
During 4QFY2010, operating costs declined by 7.9% yoy to Rs1,527cr, driven by a
21.3% yoy reduction in other operating expenses to Rs944cr. Employee costs were
up by 27.4% yoy and 36.5% sequentially in 4QFY2010, mainly on account of bonus
payments for the entire year being decided and accounted for during 4QFY010,
instead of being apportioned over all four quarters (the bank had not paid any
bonus in FY2009).
April 23, 2010 4
5. ICICI Bank I 4QFY2010 Result Update
Exhibit 7: Networth and Network buildup to drive market share gains
53000 2000
52000 1800
51000 1600
50000 1400
49000 1200
48000 1000
47000 800
46000 600
45000 400
44000 200
43000 0
FY2008 FY2009 FY2010
Networth Branches
Source: Company, Angel Research
Non-interest Income lacks momentum, due to loan book de-growth
Non-interest income was up by 13.0% qoq to Rs1,891cr, which constituted
Rs1,521cr of fee income (Rs1,422cr in 3QFY2010) and Rs196cr of treasury gains (a
treasury loss of Rs26cr in 3QFY2010). We expect an improvement in fee income
growth, as the loan growth picks up, going forward.
Exhibit 8: Break-up of Non-Interest Income
(Rs cr) 4QFY10 3QFY10 qoq (%) 4QFY09 yoy (%)
Fee Income 1,521 1,422 7.0 1,343 13.3
Treasury Gains 196 (26) 853.8 214 (8.4)
Others 174 277 (37.2) 117 48.7
Total 1,891 1,673 13.0 1,674 13.0
Source: Company, Angel Research
Asset-quality stabilising; Lower Provisioning Cost, going forward
The asset quality of the bank showed signs of stabilising, with gross slippages at
Rs700cr, driven by a sharp declining trend in slippages in retail loans. The
slippages from retail loans declined from Rs1,300cr in 1QFY2010 to Rs650cr in
3QFY2010 and further to Rs500cr in 4QFY2010. The absolute amount of Gross
NPAs increased by 6.2% sequentially to Rs9,481cr. The Gross NPA ratio of the bank
was up at 5.1% (as against 4.8% in 3QFY2010 and 4.3% in 4QFY2009), mainly on
account of the ongoing contraction in the loan book.
The Provision coverage ratio of the bank improved to 59.5% in 4QFY2010. The RBI
has extended the deadline to meet the coverage ratio requirement of 70% from
September 30, 2010 to March 31, 2011. The Bank has restructured loans of
Rs5,300cr on a cumulative basis (3.0% of total loans, 10.2% of the networth). Going
forward, we have factored in a decline in NPA provisions to decline by 15.5% in
FY2011E and 19.1% in FY2012E.
April 23, 2010 5
6. ICICI Bank I 4QFY2010 Result Update
Exhibit 9: Asset-Quality Stabilising
6.0
5.0
4.0
3.0
2.0
1.0
‐
3QFY2008
4QFY2008
1QFY2009
2QFY2009
3QFY2009
4QFY2009
1QFY2010
2QFY2010
3QFY2010
4QFY2010
% Gross NPA (LHS) % Net NPA (%)
Source: Company, Angel Research
Strong Capital Adequacy
Driven by the large Networth, Capital adequacy continued to be strong at 19.4%,
comprising a substantial Tier-1 component of 14.0%. We believe that this positions
the bank well for the imminent improvement in Credit growth, as the GDP outlook
continues to improve.
Overview of the Overseas banking subsidiaries
ICICI Bank Canada’s PAT increased to CAD 35.4mn in FY2010 from CAD 33.9mn
in FY2009. ICICI Bank Canada’s capital position continued to be strong, with a
capital adequacy ratio of 23.4% as at FY2010.
Overview of the Insurance subsidiaries
ICICI Life achieved accounting profitability for the first time since inception, with a
PAT of Rs258cr (US $57mn) in FY2010. ICICI Life’s new business Annualised
Premium Equivalent (APE) in FY2010 was Rs5,345cr (US $1.2bn), compared to
Rs5,302cr (US $1.2bn) in FY2009. Renewal premium in FY2010 increased by 19%
compared to FY2009, reflecting the long-term sustainability of the business. ICICI
Life’s unaudited New Business Profit (NBP) in FY2010 was Rs1,015cr (US $226mn),
compared to Rs1,004cr (US $224mn) in
FY2009. AUMs increased by 75% to Rs57,319cr (US $12.8bn) in FY2010, from
Rs32,788cr (US $7.3bn) in FY2009.
ICICI General’s premium income in FY2010 was Rs3,432cr (US $764mn). ICICI
General’s profit after tax increased to Rs144cr (US $32mn) in FY2010, from Rs24cr
(US $5mn) in FY2009.
Overview of the Securities and AMC Business
ICICI Prudential Asset Management Company’s profit after tax increased to Rs128cr
(US $29mn) in FY2010, from Rs0.7cr (US $155,902) in FY2009. ICICI Securities’
PAT increased to Rs123cr (US $27mn) in FY2010, from Rs4cr (US $1 mn) in
FY2009.
April 23, 2010 6
7. ICICI Bank I 4QFY2010 Result Update
Outlook and Valuation
We have a positive view on ICICI Bank, given its market-leading businesses across
the financial services spectrum. Moreover, we believe that the Bank is decisively
executing a credible strategy of consolidation that has resulted in an improved
deposit and loan mix, and should drive improved operating metrics over the
medium-term.
Apart from the paradigm shift in the deposit mix reflected in its 41% CASA ratio, the
Bank has also largely exited unattractive business segments such as small-ticket
personal loans in the Domestic Segment and most non-India related exposures in its
International business, focusing again on replacing wholesale funds with retail
deposits in the international subsidiaries as well.
The bank’s enunciated strategy also involves maintaining strong capital adequacy,
especially on Tier 1, in the current environment, while building the necessary base
for strong CASA mobilization, going forward. The Bank’s Capital Adequacy is
among the highest at 19.4%, with a substantial 14.0% Tier 1 capital. We believe that
on account of this, the bank is now well-positioned to capitalise on the overall GDP
growth and gain marketshare in Credit.
On the branch expansion front, having a total of 955 branches at the end of
3QFY2008, the Bank has added more than 786 branches since then. While an
additional 259 additions are planned within next few months, to reach the FY2010
target of 2,000 branches, this is: 1) marginally behind schedule, and 2) the
management’s indication of a lower rate of branch expansion in FY2011E is a little
disappointing, considering that, unlike its other private sector peers, the bank has
always had a materially lower branch network relative to its balance sheet and
networth, which we would have liked to see normalising sooner rather than later.
Accordingly, in our view, while the current rate of expansion should still drive
substantial CASA marketshare gains going forward, progress on this front would be
an important metric to track, going forward.
At the CMP, the Bank’s Core Banking business (after adjusting Rs307 per share
towards the value of the subsidiaries) is trading at 1.9x FY2012E ABV of Rs517. We
value the Bank’s subsidiaries at Rs307 per share of ICICI Bank and the core Bank at
Rs860 (2.25x FY2012E ABV). We maintain a Buy on the stock, with a Target Price of
Rs1,166, implying an upside of 20%.
Exhibit 10: P/ABV Band – ICICI Bank
1,600
1,400
1,200
1,000
800
(Rs)
600
400
200
0
Mar-02
Jul-02
Apr-03
Aug-03
Apr-04
Aug-04
Apr-05
Aug-05
Apr-06
Aug-06
Apr-07
Aug-07
Apr-08
Aug-08
Apr-09
Aug-09
Apr-10
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Price 1.00x 1.50x 2.00x 2.50x 3.00x
Source: Company, Angel Research
April 23, 2010 7
8. ICICI Bank I 4QFY2010 Result Update
Exhibit 11: P/E Band - ICICI Bank
2,000
1,800
1,600
1,400
1,200
(Rs)
1,000
800
600
400
200
0
Aug-02
Aug-03
Aug-04
Aug-05
Aug-06
Aug-07
Aug-08
Aug-09
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Apr-02
Apr-03
Apr-04
Apr-05
Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
Price 7x 17x 27x 37x
Source: Company, Angel Research
Exhibit 12: Premium/Discount to sensex - ICICI Bank
100
80
60
40
(%)
20
0
(20)
(40)
Jul-06
Jul-07
Jul-08
Jul-09
Jan-07
Jan-08
Jan-09
Jan-10
Apr-07
Apr-08
Apr-09
Apr-10
Mar-06
Oct-06
Oct-07
Oct-08
Oct-09
Premium/Discount to Sensex
Source: Company, Angel Research
April 23, 2010 8
10. ICICI Bank I 4QFY2010 Result Update
Research Team Tel: 4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com
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Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section).
Disclosure of Interest Statement ICICI Bank
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock Yes
3. Angel and its Group companies’ Directors ownership of the stock No
4. Broking relationship with company covered No
Note: We have not considered any Exposure below Rs 1 lakh for Angel and its Group companies.
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Tel : (022) 3952 4568 / 4040 3800
Angel Broking Ltd: BSE Sebi Regn No : INB 010996539 / CDSL Regn No: IN - DP - CDSL - 234 - 2004 / PMS Regn Code: PM/INP000001546 Angel Securities Ltd:BSE: INB010994639/INF010994639 NSE:
INB230994635/INF230994635 Membership numbers: BSE 028/NSE:09946
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April 23, 2010 10
