Dear Friends,
We are recommending Buy on our Actionable Ideas "ICICI Bank" as per following:-
CMP: Rs 315 Target: Rs 365 (15% Upside)
Key Points:
ICICI Bank: Q2FY19 results update - Performance improves, long term outlook positive
· Profits ahead of estimates: ICICI Bank has posted better than expected performance for Q2 FY19 where not only its margins expanded, but more importantly the asset quality performance was much improved, as compared to recent past. The quarter saw ICICI Bank's Net interest Income rising by 12.4% YoY to Rs6417 crore which was better than expectations and was aided by lesser slippages and a tad margin expansion as well. However, the non-interest income declined by 39.1% YoY to Rs3156 crore. This was largely expected, due to muted treasury income as well as a higher base (Q2 FY18 treasury income included a profit of Rs2012 crore on account of stake sale in subsidiary). However, more importantly, the Fee income for the quarter grew by 16.5% YoY. Core operating profit (ex-treasury income) increased by 10.2% YoY to Rs5285 crore. Net interest margins (NIMs) for the quarter improved on a sequential basis by 14 BPS to 3.33% as cost of funds remained flat (5.0% versus 4.99% QoQ) while Yield on funds improved 16 BPS sequentially to 7.85%. ICICI Bank has the advantage of a strong retail deposit base, which has been relatively lower cost as compared to the wholesale deposits which have become more expensive. Asset quality stress being largely improved helped the Provisions to decline by 11.3% YoY and 33.1% QoQ to Rs3994 crore during the quarter. The net profit for the quarter stood at Rs908 crore and was ahead of our estimates.
· Loan growth steady, but strong liability franchise is key: ICICI Bank witnessed steady loan book traction of 12.7% YoY within which domestic advances increased much faster by 15.7% YoY and was not only above industry average, but also better than several past quarters. Domestic book growth was aided by 20.5% YoY uptick in the retail segment (now forms 57.3% of the total portfolio) while corporate book growth was tepid at 5.5% YoY. Within the retails segment home loans and vehicle loans were up by 16.2% YoY and 14.4% YoY respectively while personal loans and credit card portfolio posted healthy 51.0% YoY and 25.6% YoY increase. Deposit growth for the quarter stood at 12.0% YoY but saw strong traction in CASA deposits which increased by 14.9% YoY, as a result of which the CASA ratio improved by 124 BPS YoY and 23 BPS QoQ to 50.7%. Healthy CASA ratio helped the bank in keeping cost of funds under check and thus supports margins. The bank indicated that of the overall term deposits, its retail proportion was high which we believe is a significant lever available to the bank to maintain / improve its margins, ceteris paribus.
· Improvement in Asset quality performance enthuses: During Q2FY19 ICICI Bank posted improved asset quality performance as GNPA and Net NPA ratio declined by 35 BPS and 62 BPS sequentially to 9.30% and 4.05% respectively. While the pace of slippage accretion is still elevated, it has decreased on sequential basis, which we find a positive. Hence, fresh NPA accretion during the quarter declined as accounts worth Rs3117 crore slipped into the NPA category as against Rs4036 crore in the previous quarter. Corporate & SME slippages stood at Rs2357 crore while retail segment saw NPA slippage of Rs760 crore. Accounts worth Rs1,014 crore in the corporate slippages came in from BB and below rated portfolio. BB and below rated exposure (Fund + Non-Fund Based) stands at Rs21,788 crore which includes a drilldown list of Rs3283 crore. The Banks exposure to NBFCs and HFCs stands at 5.4% of the advances book. The Bank has exposure of Rs4028 crore towards NCLT list 1 accounts and has PCR of 89.7% against it while exposure towards NCLT list 2 stands at Rs10150 crore with PCR of Rs62.1%.
· Outlook: ICICI Bank has posted better than expected performance with improvement in the asset quality, margins and retail franchisee. We believe uncertainty regarding leadership is behind us and with comfortable capital position (Tier 1 @ 15.3%) the bank appears well positioned to make the most of the opportunities. On the asset quality front management has indicated slippages to be lower for FY19E as compared to previous year and we believe the NPA cycle has peaked. Asset quality performance will be key monitorable in the near term, and while we expect gradual improvement, we believe the long term outlook appears to be improving for now. With Strong CASA profile, MCLR hike impact and lesser slippage rate there is strong probability that the margins would be sustained or show improvement.
· Valuation: ICICI Bank is valued at 1.7xFY20E book value which we believe is reasonable considering improving long term outlook. We hence upgrade our rating to BUY with a revised PT of Rs365
Regards,
F1,Achyuta,111,bharathidasan salai,
Cantonment
Trichy-620001
Tel:04314000706
Ph:8144517351
This e-mail message may contain information, which is confidential, proprietary, legally privileged or subject to copyright. It is intended for use only by the individual or entity to which it is addressed. If you are not the intended recipient or it appears that this mail has been forwarded to you without proper authority, you are not authorized to access, read, disclose, copy, use or otherwise deal with it and any such actions are prohibited and may be unlawful. The recipient acknowledges that Sharekhan Limited or its subsidiaries, (collectively "Sharekhan "), are unable to exercise control or ensure or guarantee the integrity of/over the contents of the information contained in e-mail transmissions and further acknowledges that any views expressed in this message are those of the individual sender and no binding nature of the message shall be implied or assumed unless the sender does so expressly with due authority of Sharekhan . Sharekhan does not accept liability for any errors, omissions, viruses or computer problems experienced as a result of this email. Before opening any attachments please check them for viruses and defects. If you have received this e-mail in error, please notify us immediately at mail to: mailadmin@sharekhan.com and delete this mail from your records.
