ICICI Bank. Source: Company Data; PL Research

Transcription

1 Better late than never, but guidance remains grim January 28, 2016 Nitin Kumar Pritesh Bumb Rating BUY Price Rs233 Target Price Rs300 Implied Upside 28.8% Sensex 24,470 Nifty 7,425 (Prices as on January 28, 2016) Trading data Market Cap. (Rs bn) 1,352.2 Shares o/s (m) 5, M Avg. Daily value (Rs m) Major shareholders Promoters 0.00% Foreign 53.48% Domestic Inst % Public & Other 12.40% Stock Performance (%) 1M 6M 12M Absolute (11.7) (18.2) (39.3) Relative (5.7) (7.3) (22.1) How we differ from Consensus EPS (Rs) PL Cons. % Diff Price Performance (RIC:ICBK.BO, BB:ICICIBC IN) (Rs) Jan 15 Mar 15 May 15 Source: Bloomberg Jul 15 Sep 15 Nov 15 Jan 16 ICICI Bank (ICICIBC) reported dismal performance with sharp deterioration in asset quality led by fresh slippages of Rs65.4bn. Credit cost increased sharply to 269bp (annualized) however as the bank ploughed the stake sale gains in life insurance business into provisions, the damage to coverage ratio was limited to 422bp. Bank suggested that soft commodity prices (particularly steel) and continued weak economic environment has resulted in such high NPL accretion. On operational front NII stood inline with our estimates (13% YoY growth) while fee income maintains tepid trend line growth of 6% YoY. We fine tune our earnings and lower our PT to Rs300 (from Rs360) based on 1.7x Sep 2017E ABV. We maintain BUY. NII growth on track; other income remains sluggish: ICICIBC reported 13% YoY growth in NII led by steady CASA mix at 45% (~41% on daily average basis). NIMs declined by tiny 2bp QoQ led by 6bp QoQ decline in domestic margins while overseas NIMs expanded to 2% on cheaper refinancing opportunities. Fee income growth at 6% YoY remains low mainly on weak corporate loan demand while retail fees continue to form dominant 65% of the total fee income. Retail loans continue to show steady growth: Advances grew by 16% YoY led by strong growth of 24% YoY in retail with contribution from all segments, especially housing & un secured. Retail portfolio now accounts for ~44% of the total loan mix vs ~40% last year. Management has guided higher than industry loan growth with 25% growth in retail for FY16 and stable margins at ~3.5%. ICICI PruLife stake sale helps cushion earnings: ICICIBC sold 4% stake in ICICI PruLife to Premji Invest and affiliates at Rs12.4bn thus implying a valuation of Rs325bn for the Life insurance biz. The bank is further awaiting regulatory approvals for another 2% stake in Life insurance and 9% stake sale in General insurance biz Fairfax Financial Holdings Limited valuing the entity at Rs172.2bn. Asset quality deteriorates sharply; environment challenging: Both Gross and Net NPLs increased by 33% QoQ / 47% QoQ to Rs211.5bn and Rs99bn respectively led by slippages of Rs65.4 bn (Rs13.5 bn were from restructured) while the o/s restr. assets declined to 2.6% of loans at Rs112.9 bn. The bank did refinancing of Rs4.5bn under the 5/25 scheme and SDR of Rs16.7 bn and has guided for Rs7bn under 5/25 scheme and SDR of Rs12bn. It has also guided for similar level of slippages in Q4FY16 of which 50% are likely from restructured. Key financials ( Y/e March) E 2017E 2018E Net interest income 190, , , ,461 Growth (%) Operating profit 197, , , ,557 PAT 111, , , ,317 EPS (Rs) Growth (%) (3.2) 11.3 Net DPS (Rs) Profitability & Valuation E 2017E 2018E NIM (%) RoAE (%) RoAA (%) P / BV (x) P / ABV (x) PE (x) Net dividend yield (%) Source: Company Data; PL Research Q3FY16 Result Update Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision. Please refer to important disclosures and disclaimers at the end of the report

2 NII performance remained decent on better domestic advances growth especially retail Core fee income remains tepid, stake sale gains in subsidiaries cushion operating performance Provisions were high on back of high slippages which went directly in to lower buckets of NPAs Bank had Rs7bn of deferred tax write back on stake sale gains book during the quarter Retail portfolio continues to drive overall loan growth and its share in overall loan mix remains at ~44% Margins remain broadly stable on benefit from reducing cost of funds Exhibit 1: Q3FY16: Mixed operating performance; asset quality clean up commences P & L (Rs m) Q3FY16 Q3FY15 YoY gr. (%) Q2FY16 QoQ gr.(%) Interest income 133, , , Interest expense 78,931 76, , Net interest income (NII) 54,530 48, , Treasury income 14,420 4, , Other income exc. Treasury 42,169 30, , Total income 96,698 79, , Operating expenses 31,100 28, , Staff expenses 11,404 11, ,126 (6.0) Other expenses 19,696 17, , Operating profit 65,598 50, , Core operating profit 51,178 45, , Total provisions 28,441 9, , Profit before tax 37,158 40,573 (8.4) 42,163 (11.9) Tax 6,976 11,676 (40.3) 11,862 (41.2) Profit after tax 30,181 28, ,301 (0.4) Balance Sheet (Rs m) Deposits 4,073,140 3,553, ,846, Advances 4,347,998 3,753, ,096, Profitability ratios NIM RoAA (8) 1.9 (7) RoAE (70) 14.2 (60) Asset Quality Stressed assets formation was at multiyear high with Rs65.4bn of slippages of 2/3 rd coming from RBI s directive to reclassify certain a/c as NPA. The reclassification constituted one major a/c from steel sector. The Bank also did Rs4.5bn of refinancing under 5/25 and had Rs16.7bn under SDR assets Bank remains adequately capitalized at Tier I close to ~12% Gross NPA (Rs m) 211, , , Net NPA (Rs m) 99,078 47, , Cum. Restructured assets 112, ,520 (6.3) 118,680 (4.8) Gross NPL ratio Net NPL ratio Coverage ratio (1,036) 57.4 (422) Rest. Assets/ Total adv (61) 2.9 (30) Business & Other Ratios Low cost deposit mix Cost income ratio (411) 37.5 (538) Non int. inc / total income Credit deposit ratio CAR (62) 16.2 (38) Tier I (30) January 28,

3 ICICI bank Q3FY16 Concall Highlights: Balance Sheet: Loan growth outlook Management expects loan growth to be higher than that of industry, but targeting loan growth in retail at ~25%. Incremental loans has happened to highly rated corporate and will continue the same. CASA CASA on average basis has been steady at 40% and expect CASA to remain in range of 38 40% in FY16. Margins: Margins remained stable as cost of funds are on downward trend, while higher slippages did not reverse interest as accounts have been paying. Outlook margins could be under pressure as similar slippages would attract interest reversal (primarily relapse from restructured book). Other income: Have booked Rs12.4bn on sale of stake in life insurance business to Premji Invest, while are likely to book more gains in further quarters of Rs21bn from stake sale in ICICI Lombard and ICICI Pru Life Asset Quality: RBI s re classification drive of assets All facilities have been classified as NPAs to the company whether domestic/overseas or funded/non funded or term loan/w.cap. Upgradation in the accounts re classified as NPAs would depend on these accounts start paying to all lenders and will remain at discretion with auditors. Slippages Slippages during Q3 were at Rs65.44bn of which Rs13.55bn from relapse from restructured. Of the total slippages 2/3 rd has been on back of RBI s declassification of assets to NPA, which largely belongs to steel company. Restructured loans Bank restructured Rs5.84bn of loan for 1 project. O/s restructured book stood at Rs112.9bn while SR book has come down to Rs6.39bn from Rs10.98bn in Q2FY16. 5/25 Scheme & SDR Have done amount below Rs4.5bn under the 5/25 refinancing and Rs16.7bn under SDR (O/s SDR assets at Rs19bn). Outlook Going ahead under pipeline, loans of Rs7bn are under 5/25 refinancing and Rs12bn under SDR. Outlook Management believes slippages in Q4FY16 would remain at similar levels mainly as the RBI s exercise has been taken over two quarters and 50% of these slippages will likely be from restructured book mainly from power sector. Also, bank expects higher provisioning for failed CDR restructuring in FY17 January 28,

4 Exhibit 2: Loan split and growth trends Retail/SME loan book continues its momentum, higher domestic corporate book growth on back of refinancing Loan Book Details Q3FY16 Q3FY15 YoY gr. (%) Q2FY16 QoQ gr.(%) Loan Book 4,347,998 3,753, ,096, Domestic Loan book 3,356,654 2,788, ,142, International Loan book 991, , , Retail Loan book 1,904,423 1,535, ,802, Domestic Corporate book 1,252,223 1,088, ,163, SME 200, , , Retail Loan book break up Credit Card 51,419 38, , Personal Loans 91,412 64, , Vehicle loans 337, , , Home Loans 1,045, , , Others 337, , , Exhibit 3: Business growth momentum picks up and continued to be led by retail Exhibit 4: Core fee income growth remains tepid led by weak corporate activity 23.0% Advances growth YoY Deposits growth YoY 20.0% Core fees growth YoY 20.0% 17.0% 14.0% 15.0% 10.0% 11.0% 8.0% 5.0% 5.0% 0.0% 5.0% Exhibit 5: Margins remain steady on benefit from cost of funds despite base rate cut 3.80% 3.60% 3.40% 3.20% 3.00% 2.80% 2.60% 2.40% 2.20% 2.00% NIM (%) Exhibit 6: CASA ratio remains stable as growth remains healthy 46.00% 45.00% 44.00% 43.00% 42.00% 41.00% 40.00% 39.00% 38.00% CASA (%) January 28,

5 Exhibit 7: Stressed asset accretion reaches multiyear high; guidance remains grim with similar slippages in Q4FY16 FY14 FY15 9MFY16 Fresh Slippages 12,410 47,320 11,950 16,730 22,790 32,600 84,070 16,720 22,420 65, ,580 Fresh Restructuring 21,560 61,070 13,940 8,290 17,700 12,470 52,400 19,620 1,500 5,840 26,960 Gross Stressed Asset Accretion 33, ,390 25,890 25,020 40,490 45, ,470 36,340 23,920 71, ,540 Slippage from Restructured 7,140 10,350 7,760 22,460 47,710 2,920 9,310 13,550 25,780 O/s restructured assets 105, , , , , , , , , , ,940 Net addition in restructured assets 19,560 36,080 7,070 (2,450) 10,320 (10,350) 4,590 15,870 (7,360) (5,740) (5,740) Net stressed asset formation 31,970 83,400 19,020 14,280 33,110 22,250 88,660 32,590 15,060 59,700 98,840 5/25 re financing 10,000 20,000 4,500 34,500 SDR assets 3, ,700 Exhibit 8: Asset quality sees sharp deterioration as bank recognizes loans on RBI s directive 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 4Q11 Gross NPA (%) Net NPA (%) Exhibit 9:...as a result credit cost also spiked very sharply 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 4Q11 Credit Cost Exhibit 10: Earnings change table We factor in higher credit cost on back of higher slippages and step up in provisioning on failed CDR loans in FY17 (Rs mn) Old Revised % Change New FY16E FY17E FY16E FY17E FY16E FY17E FY18E Net interest income 213, , , ,232 (0.0) (0.4) 277,461 Operating profit 216, , , , (12.1) 242,557 Net profit 122, , , ,226 (2.4) (17.4) 129,318 EPS (Rs) (2.4) (17.4) 22.3 ABVPS (Rs) (8.1) (8.6) Price target (Rs) (16.8) Recommendation BUY BUY January 28,

6 Exhibit 11: We revise our PT to Rs360 (from Rs390) based on SOTP valuation as we slightly lower our yield and loan growth estimates Sum of the parts valuation (Rs/share) Value per share (Rs) Holding (%) Multiple Basis FY17E ICICI Standalone x Avg of EVA & two stage GGM 213 Subsidiaries / Others ICICI Bank UK 100 1x BV 4 ICICI Bank Canada 100 1x BV 5 Life insurance 74 14x NBAP + EV 40 General insurance 74 On basis of recent deal 22 Asset management % AUM 5 Private equity PAT 2 Primary dealer x PAT 3 Investment banking x PAT 2 Home finance x ABV 3 Total subsidiaries' value 87 % contribution of Subsidiaries / Others 29.0 Total fair value per share 300 Exhibit 12: ICICIBC Historical P/ABV trends 3.5 P/ABV 3 yr avg. avg. + 1 SD avg. 1 SD Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12 Apr 12 Jul 12 Oct 12 Jan 13 Apr 13 Jul 13 Oct 13 Jan 14 Apr 14 Jul 14 Oct 14 Jan 15 Apr 15 Jul 15 Oct 15 Jan 16 January 28,

7 Income Statement (Rs m) Int. Earned from Adv. 356, , , ,533 Int. Earned from Invt. 119, , , ,632 Others 15,155 13,788 17,848 21,370 Total Interest Income 490, , , ,535 Interest expense 300, , , ,074 NII 190, , , ,461 Growth (%) Treasury Income 15,485 16,000 NTNII 106, , , ,170 Non Interest Income 121, , , ,170 Total Income 612, , , ,705 Growth (%) Operating Expense 114, , , ,075 Operating Profit 197, , , ,557 Growth (%) (6.2) 12.1 NPA Provisions 31,410 67,150 47,304 54,251 Investment Provisions 2, Total Provisions 38,996 70,464 50,251 57,817 PBT 158, , , ,740 Tax Provisions 46,450 40,015 49,811 55,423 Effective Tax Rate (%) PAT 111, , , ,317 Growth (%) (3.2) 11.3 Balance Sheet (Rs m) Par Value No. of equity shares 5,798 5,798 5,798 3,866 Equity 11,597 11,597 11,597 11,597 Networth 804, , ,889 1,045,486 Adj. Networth 741, , , ,719 Deposits 3,615,627 4,208,590 5,004,014 6,034,841 Growth (%) Low Cost deposits 1,643,799 1,910,700 2,281,830 2,794,131 % of total deposits Total Liabilities 6,461,293 7,531,332 8,889,775 10,594,771 Net Advances 3,875,221 4,518,507 5,440,283 6,615,384 Growth (%) Investments 1,865,800 2,107,847 2,379,109 2,731,365 Total Assets 6,461,293 7,531,332 8,889,775 10,594,771. Quarterly Financials (Rs m) Y/e March Q4FY15 Q1FY16 Q2FY16 Q3FY16 Interest Income 127, , , ,461 Interest Expense 76,591 76,975 78,474 78,931 Net Interest Income 50,794 51,151 52,515 54,530 Non Interest Income 34,963 29,899 30,074 42,169 CEB 21,370 21,100 22,350 22,350 Treasury 7,260 2,070 2,220 14,420 Net Total Income 85,757 81,050 82,588 96,698 Operating Expenses 31,074 30,672 31,004 31,100 Employee Expenses 12,988 12,673 12,126 11,404 Other Expenses 18,086 17,999 18,878 19,696 Operating Profit 54,683 50,378 51,584 65,598 Core Operating Profit 47,423 48,308 49,364 51,178 Provisions 13,447 9,554 9,422 28,441 Loan loss provisions 12,807 8,254 9,422 Investment Depreciation Profit before tax 41,236 40,824 42,163 37,158 Tax 12,016 11,063 11,862 6,976 PAT before EO 29,220 29,762 30,301 30,181 Extraordinary item PAT 29,220 29,762 30,301 30,181 Key Ratios CMP (Rs) Equity Shrs. Os. (m) 5,798 5,798 5,798 3,866 Market Cap (Rs m) 1,352,164 1,352,164 1,352, ,443 M/Cap to AUM (%) EPS (Rs) Book Value (Rs) Adj. BV (100%) (Rs) P/E (x) P/BV (x) P/ABV (x) DPS (Rs) Dividend Yield (%) Profitability (%) NIM RoAA RoAE Efficiency Cost Income Ratio (%) C D Ratio (%) Business per Emp. (Rs m) Profit per Emp. (Rs lacs) Business per Branch (Rs m) 1,736 1,758 1,830 1,927 Profit per Branch (Rs m) Asset Quality Gross NPAs (Rs m) 150, , , ,058 Net NPAs (Rs m) 62, , , ,767 Gr. NPAs to Gross Adv. (%) Net NPAs to Net Adv. (%) NPA Coverage (%) January 28,

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