Buy ICICI Bank; target of Rs 434: Angel

Angel Broking's report on ICICI Bank

During 3QFY2015, the bank’s advances grew by 12.8% yoy, aided by healthy retail loan book growth of 25.6% yoy. Secured products like mortgage loans and auto loans grew by 27% and 32% yoy respectively, and were the major drivers contributing towards the growth of the retail loan book growth. Retail loans’ contribution to total loans grew to 40.9% as compared to 36.7% as on 3QFY2014. Deposits grew by 12.1% yoy, with CASA deposits growing by 14.1% yoy. As a result, the CASA ratio improved by 75bp yoy to 44.0% as on 3QFY2015. The Reported NIM improved by 4bp qoq to 3.46%, with the domestic NIM improving to 3.88% as compared to 3.84% in 2QFY2015, due to lower cost of funds. The International NIM increased to 1.67% as compared to 1.58% in 2QFY2015. The non-interest income (excluding treasury) for the bank grew at 12.5% yoy, aided by strong growth in income under the ‘others’ head (which mainly includes dividend from subsidiaries), even as fee income grew at a moderate pace.

On the asset quality front, the bank witnessed higher than anticipated slippages of Rs 2,279cr as compared to Rs 1,673cr in the previous quarter, with around 34% of slippages from the restructured portfolio. The Gross NPA ratio increased by 28bp sequentially to 3.4%, whereas the Net NPA increased by 18bp qoq to 1.27%. Fresh restructuring for the quarter came in at Rs 1,770cr; the bank has a restructuring pipeline of Rs 2,300cr for 4QFY2015. According to the Management, pressure on asset quality persists mainly on account of prolonged slowdown in the economy and sectors like Iron and steel and EPC continuing to witness stress. The bank has guided towards addition to NPAs being higher in 4QFY2015 as compared to 3QFY2015; however incremental stressed assets (excluding slippage from restructuring) in this year will be lower than FY2014.

Outlook and valuation: "At CMP, the bank’s core banking business (after adjusting Rs 47/share towards value of subsidiaries) is trading at 2.35x FY2016E ABV. From a structural point-of-view, keeping in mind its robust franchise and capital adequacy position, the bank is well positioned to grow by at least a few percentage points higher than the average industry growth, as and when the business environment turns conducive. We maintain our Buy recommendation on the bank with a price target of Rs 434", says Angel Broking research report.

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