Buy ICICI Bank; target of Rs 1200: Emkay

Emkay Global Financial Services is bullish on ICICI Bank and has recommended buy rating on the stock with a target of Rs 1200 in its April 27, 2012 research report.

“ICICI Bank Q4FY12 NII at Rs31bn (+24% yoy / 15% qoq) and net profit at Rs19bn (+31% yoy / 10% qoq) was significantly ahead of our / street estimates. The NII growth was aided by 17% yoy growth in loan portfolio and 30bps sequential improvement in reported NIM to 3.01% (highest in near past). Growth in non-interest income came in healthy at 36% yoy (18% qoq) and compensated for higher provisioning (+22% yoy / 38% qoq) and taxes (tax rate @28%). The bank has added 200 branches in Q4. Asset quality continues to report second quarter of sequential improvement with GNPA / NNPA down 4%/11% qoq respectively. Restructured loan portfolio increased to Rs42.6bn (+39% qoq). This increase however was largely anticipated.”

“Domestic loan portfolio grew 14% yoy (4% qoq) largely led by healthy growth in SME and domestic corporate front. Growth in international book adjusted for INR depreciation was at 10%yoy. Deposits were up 13% yoy (-2% qoq); CASA ratio continues to remain at healthy 40+% levels for consecutive ninth quarter. As against 17.3% yoy (3.1% qoq) growth in overall loan portfolio, growth in domestic loans came in at 14.3% yoy (4.4% qoq). This growth was led by strong traction in segments of a) SME (+30% yoy / 16% qoq) and domestic corporates (+27% yoy / 10% qoq). Rural portfolio at Rs223bn (+28% qoq) was largely due to year end phenomenon. Growth in retail portfolio came in lower at 7.6% yoy (9% qoq). Unlike its peers – HDFC Bank / Yes Bank which reported muted growth in credit towards large corporate loans, ICICI Bank reported healthy 26% yoy growth in domestic corporates. The mgmt attributed the reason for growth towards increasing credit demand in the nature of working capital / term loans. Growth in the international book came in healthy at 26% yoy. Adjusted for INR dep., book was +10% yoy.”

“An increasing branch network with focus at garnering CASA deposits has enabled ICICI Bank retain its CASA ratio at 40+ levels for past several quarters. Q4FY12 CASA ratio came in at 43.5% (avg 39%), with growth in CASA deposits at 9.2% yoy. Growth in SA deposits came in higher at 14% yoy (4% qoq). The CA was down 13% qoq due to one-offs in CA account in Q3FY12 (float due to NHAI bonds). As against 36% yoy (18% qoq) growth in non-interest income, growth in core fee income continues to remain fragile at -3.5% yoy / +1.6% qoq. The management attributed lower fee income to limited M&A activities and syndication business. It has also guided for low double digit growth in fee income for FY13 and expects healthy traction in segments like transaction banking and remittances business. Treasury income came in at +Rs1.6bn vs loss of Rs2bn in Q4FY11. Other income included dividend income from UK subs. (Rs1bn) and life insurance (~Rs1bn). Adjusted for the same, growth in non-inc int was at 24% yoy (7% qoq).”
“ICICI Bank Q4FY12 results reflected material improvement in its operating matrix viz a) stable loan growth, b) NIM expansion (both domestic and international), c) CASA retention d) sequential improvement in asset quality and e) lower credit cost. The bank has capitalized the current phase of growth moderation towards branch expansion and moderation in growth. However, as economic activities revive, we expect ICICI Bank to gain market share. A well diversified loan mix with stable cost will ensure NIM improvement over FY12-14E."

"We have raised our NII assumption for FY13 by 7% following higher than expected improvement in Q4FY12 NIM. We are now factoring NIM at average 2.6% over FY12-14E. Even after factoring 70bps of credit cost, we expect RoA to move upwards of 1.6-1.7% over FY12-14E and resultant core RoE to improve to 16-18%. We expect bank to report 18% / 17% CAGR in net profit / customer assets over FY12-14E. Upgrade to BUY with price target of Rs1200. Higher than expected increase in restructured loan portfolio / slippages from the same and lower credit growth remain key risks to our estimates,” says Emkay Global Financial Services research report.  

Public holding more than 90% in Indian cos

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