ICICI Bank. Result Update. Buy

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1 Result Update ICICI Bank Buy Stress priced-in; Servings are on course Lull operating performance; retail broadens out PAT at ` 20.4bn (in-line with our est. ` 20.2bn) reporting soft QoQ growth and 8% YoY decline as NII weakens (6% decline QoQ, mere 8% up YoY) as the loan book reports paltry 3% YoY growth. While domestic loans grew healthy at 11% YoY, the overseas book continues to decline (down 25% YoY). Moreover, the bank continues to pare down lumpy corporate exposures reflected in the 2.8% YoY decline in corporate book and the shift to retail mix stands rapidly with a retail contribution at 53% of the overall mix. NIMs for the quarter trimmed 32 bps QoQ to 3.21% due to steep MCLR cut, loan repricing, interest reversals. That said, with CASA mobilisation (strong at 49% (average 45%) and the strong liability franchise that ICICI bank boasts we reckon NIMs to stabilise at 3.2% levels ahead. Asset quality improvement on the anvil While loan trends remain dull as the bank continues to focus on book cleanup and consolidation, the asset quality moderately deteriorated. Gross NPA stood at 8% (up from 5.9% in Q1FY17, but flattish QoQ), net NPA mildly enhanced YoY. However, what brings respite is that the bank proactively provided an additional of ` 1.6bn for exposures against identified stressed telecom, power, iron and steel and mining and rig sectors. Moreover, the bank attained 41% provision (as against RBI requirement of 50% mandate staggered through the FY) for 12 accounts referred to IBC, wherein bank s exposure stands to the tune of ` 68.9bn (non-funded ` 3.5bn). Despite that, slippages stood contained at ` 49.8bn as 95% of the above exposure stands recognized. However, the credit costs ahead are expected to stay elevated primarily due to high alert accounts; (a) Q1 watch-list exposure stood higher due to power slip-up (b) outside watch-list slip-ups around the corner. Having said that, given the adequate provisioning, and substantial stress recognition already reflecting in the books, the slippages YoY should look down; recoveries being the catalyst for outperformance. Heavy stress recognition, subsequent elevated credit costs, and tad NIM pressures prompt us to prune our earnings estimates slightly lower for FY18, FY19 remains unchanged. ICICI Bank continues to focus on balance sheet reorientation, paring down exposures to challenging sectors (power, iron & steel, cement and rigs) and maintaining granular retail focus. MAINTAIN BUY.. Q1FY18 Result (` Mn) Particulars Q1FY18 Q1FY17 Q4FY17 QoQ(%) YoY(%) Interest earned 134, , , Interest expended 78,693 81,717 76, Net interest income 55,898 51,585 59, Other income 33,879 34,293 30, Total Net Income 89,778 85,878 89, Operating expenses 37,944 33,731 38, Pre-provision profits 51,833 52,147 51, Provisions 26,087 25,145 28, Tax expense 5,256 4,679 1, Reported Net Profit 20,490 22,324 20, CMP ` 299 Target / Upside ` 370/24% BSE Sensex 30,049 NSE Nifty 9,337 Scrip Details Equity / FV ` 11,714mn/` 2/- Market Cap ` 1,917bn USD 30bn 52 week High/Low ` 314/215 Avg. Volume (no) 14,515,657 NSE Symbol Bloomberg Code Shareholding Pattern Mar 17(%) ICICIBANK ICICIBC IN Promoters 0 MF/Banks/FIs 30.3 FIIs 60.1 Public / Others 9.6 Valuation (x) FY17 FY18E FY19E P/E P/ABV ROAA ROAE Estimates (` mn) FY17 FY18E FY19E NII 217, , ,800 PPP 264, , ,546 PAT 98,011 97, ,074 Adj. BV Sr. Analyst: Shweta Dapatardar Tel: shwetad@dolatcapital.com Advances (` mn) 4,640,752 4,494,265 4,642, CASA (%) Gross NPA (%) July 28, 2017

2 Valuation and Recommendation ICICI Bank continues to focus on balance sheet re-orientation, paring down exposures to challenging sectors (power, iron & steel, cement and rigs) and maintaining granular retail strength both on the assets (Q1FY18 witnessed home loans up ~17% YoY, both personal loans and credit cards recorded >35% YoY growth each; selective focus on high rated corporates) and the liability side (staunch CASA at 49%, average CASA ratio at ~45.4%). While the asset quality improvement was curtailed by higher non-watchlist slip-ups, the watch-list exposure continues to decline, fresh slippages continue to trim and the recognition of overall stressed loans already been there indicating steady improvement; resolution remains the key though. Incorporating better credit environment as we usher into FY19, we believe the GNPA should decline to <7% and PCR should inch higher to 66%. While asset quality is not yet out of woods, the improvement in portfolio mix (with more than 50% of the book tilting towards retail mix), strong retail lending accretion, stability in margins (3.2% over FY18-19E as the bank combats pricing pressures particularly on the retail portfolio) and significant capital on balance sheet with sufficient cushion from subsidiaries should aid ICICI Bank put up consistent quality show on operating metrics. Moreover, with CASA franchise standing on a firm footing, ICICI bank s business will continue to shine; expect 16%+ advances CAGR and 17% deposits CAGR over next two years. Higher provisioning for contingent times coupled with stringent balance sheet repair and ameliorating retail franchise are key triggers for the strong operating show ahead. The asset quality woes continue to haunt ICICI bank valuations, said that the resolution stands around the corner with FY18 slippages looking down vis-à-vis FY17, we reiterate BUY rating on the stock. We are valuing the core bank at 1.8x P/ABV FY19E arriving at bank s fair value at ` 273 and subsidiaries value at ` 97 per share with SOTP fair value of ` 370. July 28,

3 Income Statement (` mn) Interest income 527, , , ,471 Interest expense -315, , , ,671 Net interest income 212, , , ,800 growth (%) Non-interest income 153, , , ,518 Operating income 365, , , ,318 Operating expenses -126, , , ,772 - Staff expenses 50,023 57,337 73,890 93,645 Pre-provisions profit 238, , , ,546 growth (%) Provisions & Contingencies -116, , ,061-98,582 Pre-tax profit 121, , , ,965 Tax (current + deferred) -24,694-14,775-24,435-42,891 Net profit 97,263 98,011 97, ,074 growth (%) Balance Sheet (` mn) Cash 598, , , ,202 Investments 1,604,118 1,615,065 1,709,533 1,853,388 Advances 4,352,639 4,642,321 5,283,613 6,100,722 Interest earning assets 6,555,445 7,014,517 7,785,696 8,788,312 Fixed assets (Net block) 75,769 78,052 84,181 91,458 Other assets 575, , ,983 1,109,322 Total assets 7,206,951 7,717,915 8,608,859 9,989,092 Deposits 4,214,257 4,900,391 5,611,397 6,721,431 Other int. bearing liab. 1,744,574 1,475,562 1,593,606 1,788,113 Total Int. bearing liab. 5,958,831 6,375,952 7,560,136 8,509,543 Other liab. and provisions 347, , , ,158 Share capital 11,632 11,651 12,890 12,890 Reserves & surplus 889, ,860 1,035,833 1,110,500 Shareholders funds 900, ,511 1,048,723 1,123,390 Total equity & liabilities 7,206,951 7,717,915 8,608,859 9,989,092 E Estimates Important Ratios Valuation ratios Adjusted EPS (`) BVPS (`) Adjusted Book NAV/share (`) PER (x) Price/Book (x) Price/Adjusted book (x) Dividend Yield (%) Du-Pont ratios NII/Avg. Assets (%) Non-int. inc/avg Assets (%) Cost / Avg Assets (%) Non-tax Prov/Avg Assets (%) Tax Prov. / Avg Assets (%) ROA (%) Leverage (x) ROE (%) Balance Sheet ratios Loan growth (%) Deposit growth (%) Loans/Deposits (%) Investments/Deposits (%) CASA ratio (%) Profitability ratios NIMs (%) Interest spread (%) Yield on advances (%) Cost of deposits (%) Efficiency/other P/L ratios Non-interest income/net income (%) Trading income/net income (%) Cost/Income (%) Asset quality ratios Gross NPLs (%) Net NPLs (%) Net NPLs/Net worth (%) Loan prov/avg loans (%) Provisions cover (%) Capitalisation ratios Tier I cap.adequacy (%) Total cap.adequacy (%) E Estimates July 28,

4 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 DART RATING MATRIX Total Return Expectation (12 Months) Buy > 20% Accumulate 10 to 20% Reduce 0 to 10% Sell < 0% Rating and Target Price History 450 ICICI Bank Target Month Rating TP (`) CMP (`) Feb-17 Buy May-17 Buy DART Team Purvag Shah Managing Director purvag@dolatcapital.com Amit Khurana, CFA Head of Equities amit@dolatcapital.com CONTACT DETAILS Equity Sales Designation Direct Lines Kishor Bagri, CFA VP - Equity Sales kishorb@dolatcapital.com Kartik Sadagopan VP - Equity Sales kartiks@dolatcapital.com Kapil Yadav VP - Institutional Sales kapil@dolatcapital.com Yomika Agarwal VP - FII Sales yomika@dolatcapital.com Equity Trading Designation P. Sridhar VP and Head of Sales Trading sridhar@dolatcapital.com Chandrakant Ware AVP - Equity Sales Trading chandrakant@dolatcapital.com Derivatives Trading Designation Shirish Thakkar AVP - Derivatives shirisht@dolatcapital.com Hardik Mehta Sales Trader hardikm@dolatcapital.com Dolat Capital Market Private Limited. 20, Rajabahadur Mansion, 1st Floor, Ambalal Doshi Marg, Fort, Mumbai

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