Q3FY17 RESULT UPDATE Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 GEOJIT Research Nov-16 Dec-16 Jan-17 Feb-17 RETAIL EQUITY RESEARCH ICICI Bank Ltd Banking BSE CODE:532174 NSE CODE: ICICIBANK Bloomberg CODE:ICICIBC:IN SENSEX: 28,335 BUY Rating as per Large cap 12months investment period CMP Rs288 TARGET Rs325 RETURN 13% 08 th February 2017 Strong traction in retail segment continues ddd******* ICICI Bank is India's largest private sector bank with network of 4,504 Branches and 14,146 ATM's across India. Advances grew at a moderate pace of 5% YoY led by strong growth of 17% in domestic retail advances but partly offset by 16% decline in overseas loans. Net interest income (NII) dropped by 2% YoY (largely in line with expectation) on the back of 33 bps contraction in net interest margin (NIM) to 3.4%. We expect NII and net profit to grow at 9% and 7% CAGR, respectively over FY16-19E mainly led by strong traction from retail business. While slippages will remain elevated in FY17E, we expect it to improve gradually from FY18E onwards given the expected resolution in two large accounts. Given the increasing share of retail business, the bank is well placed to capitalise on the expected improvement in the economic cycle. Hence, we continue to maintain BUY rating on the stock with a TP of Rs325. Retail growth momentum continues ICICI Bank s domestic loan book grew at a healthy pace of 12% YoY largely driven by 17% growth in retail advances. However, domestic corporate loans reported muted growth of 4% YoY on the back of the bank s continuous focus on reducing stress exposure. Further, international loans declined by 16% YoY mainly due to maturity of USD870mn of overseas loans against FCNR deposits. Hence, the bank s overall loan book grew by 5% YoY. On liabilities side, demonetization led to strong CASA flow of 26% YoY, especially in savings account ( 30%). As a result, CASA ratio improved and touched an all-time high of 50%. Going forward, we expect advances and deposits to grow at a healthy CAGR of 12% and 13%, respectively over FY16-19E led by strong traction from retail segment. Operating performance on track Net interest income (NII) dropped by 2% YoY (largely in line with expectation) on the back of weak credit growth and declining net interest margin (NIM). NIM declined by 33 bps YoY to 3.4% as the overseas margins declined by 111 bps to 0.8% due to higher interest reversals on non-performing loans (NPLs). Operating expenses increased by 22% YoY on account of higher expenses related to demonetization. Excluding one-off, the operating profit grew by 4% YoY. Net profit of ICICI Bank declined by 19% YoY owing to sluggish core income growth and elevated credit cost. However, we expect NII and net profit to grow at a modest pace of 9% and 7% CAGR, respectively over FY16-19E mainly led by stable NIM coupled with lower operating expenses. Asset quality to improve gradually from FY18E Slippages declined by 12% QoQ but remained at elevated levels due to higher delinquencies (75% of total slippages) from the bank s exposure to stressed sectors and restructured book. As a result, Gross/Net non-performing assets (NPA) ratios increased by 109/78 bps QoQ to 7.9%/4.4%. The size of watchlist declined by 15% QoQ to Rs27,536cr (6% of loan book) owing to slippages. On a positive note, the management expects resolution in two large accounts (JP and Essar) which would further reduce the size of watch-list over next two to three quarters. Overall, we expect slippages to remain elevated in FY17E but to improve gradually from FY18E onwards. Outlook and Valuation: Although the stress from corporate loan portfolio has increased, the quality of its retail portfolio is still intact. Therefore, we expect return ratios of the bank to improve gradually while near term challenges on asset quality persists. Moreover, the management has guided for reduction in watch-list given the expected resolution in two large accounts. Hence, we continue to maintain BUY rating on the stock with a TP of Rs325 using sum of the part (SOTP) methodology, where we value its standalone business at Rs252 (P/ABV of 1.7x for FY19E) and subsidiaries at Rs73. Company Data Market Cap (Rs cr) 167,564 Outstanding Shares (cr) 582.1 Free Float 100.0% Dividend Yield 1.7% 52 week high Rs298 52 week low Rs181 6m average volume (cr) 1.8 Beta 1.4 Face value Rs2 Shareholding % Q1 FY17 Q2 FY17 Q3 FY17 Promoters 0.0 0.0 0.0 FII s 39.2 37.9 37.2 MFs/Insti 26.2 27.5 28.8 Public& Others 34.5 34.6 34.0 Total 100.0 100.0 100.0 Price Performance 3mth 6mth 1 Year Absolute Return 3.3% 17.0% 37.6% Absolute Sensex 3.2% 0.9% 15.1% Relative Return* 0.1% 16.1% 22.5% *over or under performance to benchmark index 325 275 225 175 ICICI Bank Sensex (rebased) Y.E Mar (Rscr) FY17E FY18E FY19E Net Interest Income 21,258 24,032 27,052 Growth (%) 0% 13% 13% NIM (%) 3.4 3.5 3.5 Pre Pro Profit 26,566 22,548 25,136 Growth (%) 11% -15% 11% Net Profit 9,475 10,393 11,823 Growth (%) -3% 10% 14% EPS 16.3 17.9 20.3 Growth (%) -3% 10% 14% P/E 17.7 16.1 14.2 P/BV 1.8 1.7 1.5 P/ABV 2.3 2.1 1.9 RoE (%) 10.4 10.8 11.3 RoA (%) 1.3 1.3 1.3
Quarterly Financials (Standalone) Profit & Loss Account (Rs cr) Q3FY17 Q3FY16 YoY Growth % Q2FY17 QoQ Growth % Interest Income 13,618 13,346 2.0 13,639 (0.2) Interest on advances 9,870 9,863 0.1 9,905 (0.4) Income on Investments 2,948 2,652 11.1 2,997 (1.6) Others 800 831 (3.6) 737 8.6 Interest Expense 8,255 7,893 4.6 8,386 (1.6) Net Interest Income 5,363 5,453 (1.6) 5,253 2.1 Non-Interest Income 3,938 4,217 (6.6) 9,120 (56.8) Total Net Income 9,302 9,670 (3.8) 14,373 (35.3) Operating Expenses 3,778 3,110 21.5 3,737 1.1 Employee Cost 1,406 1,140 23.3 1,557 (9.7) Other Operating Exp. 2,372 1,970 20.4 2,180 8.8 Total Income 17,556 17,563 (0.0) 22,759 (22.9) Total Expenditure 12,032 11,003 9.4 12,123 (0.7) Pre-Provisioning profit 5,524 6,560 (15.8) 10,636 (48.1) Provisions 2,713 2,844 (4.6) 7,083 (61.7) Profit Before Tax 2,811 3,716 (24.3) 3,553 (20.9) Tax 369 698 (47.0) 451 (18.1) Net Profit 2,442 3,018 (19.1) 3,102 (21.3) EPS - Diluted (Rs) 4.2 5.2 (19.1) 5.3 (21.3) Key Ratios Q3FY17 Q3FY16 YoY bps Q2FY17 QoQ bps NIM 3.4 3.8 (33) 3.4 5 Cost of Fund 5.3 5.6 (31) 5.5 (20) Yield on Advances 8.7 9.3 (68) 8.8 (11) Yield on Investment 6.9 6.7 19 7.0 (13) Yield on Fund 8.0 8.7 (71) 8.2 (20) Cost to Income 40.6 32.2 845 26.0 1461 Credit to Deposit 98.3 106.7 (843) 101.2 (283) CASA 49.9 45.2 466 45.7 415 CAR 16.0 15.8 21 16.1 (16) Tier I Capital 12.6 11.8 76 12.7 (17) GNPA 7.9 4.7 319 6.8 109 NNPA 4.4 2.3 207 3.6 78 Provision Coverage 57.1 53.2 390 59.6 (250) Credit Cost 2.4 2.6 (24) 6.2 (386) ROE (Ann.) 10.1 13.7 (356) 13.3 (313) ROA (Ann.) 1.3 1.8 (48) 1.7 (38) SOTP Valuation Particulars Basis Multiple Year Value/Share ICICI Bank ABV 1.7 FY19E 252 Life Insurance Current Market Cap 49 General Insurance Proposed Transaction Value 19 Others FY19E 24 Total Value of Subsidiaries 91 20% holding discount 18 Total Value 325 Old estimates New estimates Change % Year / Rscr FY17E FY18E FY17E FY18E FY17E FY18E NII 21,896 25,416 21,258 24,032-2.9-5.4 PPP 26,378 23,805 26,566 22,548 0.7-5.3 PAT 9,582 10,893 9,475 10,393-1.1-4.6 EPS 16.5 18.7 16.3 17.9-1.1-4.6 Source: Company, Geojit BNP Paribas Research
Standalone Financials Profit & Loss Account Balance Sheet Y.E March (Rscr) FY15 FY16 FY17E FY18E FY19E Interest Income 49,091 52,739 54,341 59,111 66,683 Interest Expense 30,052 31,515 33,083 35,078 39,631 Net Interest Income 19,040 21,224 21,258 24,032 27,052 % Change 15.6 11.5 0.2 13.1 12.6 Non-Interest Income 12,176 15,323 20,221 14,769 16,352 Net Income 31,216 36,547 41,479 38,801 43,404 Operating Expenses 11,496 12,684 14,912 16,253 18,268 Total Income 61,267 68,062 74,562 73,880 83,035 Total Expenditure 41,547 44,199 47,996 51,332 57,899 Pre-Provisioning Profit 19,720 23,864 26,566 22,548 25,136 % Change 18.8 21.0 11.3 (15.1) 11.5 Provisions 3,900 11,668 15,419 8,690 9,371 Profit Before Tax 15,820 12,196 11,147 13,858 15,765 Tax 4,645 2,469 1,672 3,464 3,941 Tax Rate (%) 29 20 15 25 25 Net Profit 11,175 9,726 9,475 10,393 11,823 % Change 13.9 (13.0) (2.6) 9.7 13.8 No. of Shares (cr) 584 585 586 586 586 EPS (Rs) 19.3 16.7 16.3 17.9 20.3 % Change 13.5 (13.2) (2.6) 9.7 13.8 Y.E March (Rscr) FY15 FY16 FY17E FY18E FY19E Liabilities Capital 1,167 1,170 1,171 1,171 1,171 Reserves & Surplus 79,262 88,566 92,032 98,915 107,228 Deposits 361,563 421,426 476,991 537,404 605,730 Borrowings 172,417 174,807 163,537 184,331 211,612 Other Liabilities & Provisions 31,720 34,726 34,660 35,972 37,284 Total Liabilities 646,129 720,695 768,391 857,794 963,025 Assets Cash & Balances 42,305 59,869 65,378 70,971 73,937 Investments 186,580 160,412 171,717 193,466 212,611 Advances 387,522 435,264 467,247 526,660 604,606 Fixed Assets 4,726 7,577 7,956 8,155 8,155 Other Assets 24,997 57,574 56,093 58,543 63,716 Total Assets 646,129 720,695 768,391 857,794 963,025 Ratios Y.E March (Rs) FY15 FY16 FY17E FY18E FY19E EPS 19.3 16.7 16.3 17.9 20.3 DPS 4.6 5.0 5.0 5.5 5.5 BV 138.7 154.3 160.3 172.1 186.4 ABV 127.9 132.0 123.9 134.3 148.7 Valuation (%) P/E 14.9 17.2 17.7 16.1 14.2 P/BV 2.1 1.9 1.8 1.7 1.5 P/ABV 2.3 2.2 2.3 2.1 1.9 Div. Yield 0.3 1.8 1.8 2.0 2.0 Spreads (%) Yield on Advances 9.8 9.5 8.8 8.6 8.6 Yield on Investments 6.6 6.1 7.0 7.1 7.1 Yield on Funds 8.4 8.3 8.0 7.9 7.9 Cost of Funds 5.9 5.6 5.4 5.2 5.2 Capital (%) CAR 17.0 16.6 16.2 15.6 15.0 Tier I 12.8 13.1 12.8 12.3 11.8 Tier II 4.2 3.5 3.5 3.3 3.2 Asset (%) GNPA 3.8 5.8 8.7 8.4 7.6 NNPA 1.6 3.0 4.5 4.2 3.6 PCR 58.6 61.0 60.0 62.5 62.5 Management (%) Credit/ Deposit 107.2 103.3 98.0 98.0 99.8 Cost/ Income 36.8 34.7 36.0 41.9 42.1 CASA 45.5 45.8 47.3 47.4 47.5 Earnings (%) NIM 3.5 3.6 3.4 3.5 3.5 ROE 14.5 11.4 10.4 10.8 11.3 ROA 1.8 1.4 1.3 1.3 1.3
Recommendation Summary (last 3 years) Dates Rating Target 450 16 April 2014 BUY 288 23 May 2014 BUY 352 400 13 August 2014 BUY 352 350 25 November 2014 BUY 387 03 July 2015 BUY 379 300 15 January 2016 BUY 364 09 August 2016 BUY 295 250 10 November 2016 BUY 325 200 08 February 2017 BUY 325 150 100 50 0 Feb-14 Aug-14 Feb-15 Aug-15 Feb-16 Aug-16 Feb-17 Source: Bloomberg, Geojit BNP Paribas Research Investment Rating Criteria Large Cap Stocks; Mid Cap and Small Cap; Buy - Upside is 10% or more. Buy - Upside is 15% or more. Hold - Upside or downside is less than 10%. Accumulate* - Upside between 10% - 15%. Reduce - Downside is 10% or more. Hold - Absolute returns between 0% - 10%. Reduce/Sell - Absolute returns less than 0%. To satisfy regulatory requirements, we attribute Accumulate as Buy and Reduce as Sell. The recommendations are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating. * For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. Please note that the stock always carries the risk of being upgraded to BUY or downgraded to a HOLD, REDUCE or SELL. Geojit BNP Paribas Financial Services Limited has outsourced the preparation of this research report to DION Global Solutions Limited whose relevant disclosures are available hereunder. However, Geojit BNP Paribas's research desk have reviewed this report for any untrue statement of material fact or any false or misleading information. General Disclosures and Disclaimers CERTIFICATION I, Kaushal Patel, employee of Dion Global Solutions Limited (Dion) is engaged in preparation of this report and hereby certify that all the views expressed in this research report (report) reflect my personal views about any or all of the subject issuer or securities. Disclaimer This report has been prepared by Dion and the report & its contents are the exclusive property of the Dion and the client cannot tamper with the report or its contents in any manner and the said report, shall in no case, be further distributed to any third party for commercial use, with or without consideration. Geojit BNP Paribas Financial Services Limited has outsourced the assignment of preparation of this report to Dion. Recipient shall not further distribute the report to a third party for a commercial consideration as this report is being furnished to the recipient solely for the purpose of information. Dion has taken steps to ensure that facts in this report are based on reliable information but cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this report. It is hereby confirmed that wherever Dion has employed a rating system in this report, the rating system has been clearly defined including the time horizon and benchmarks on which the rating is based. Descriptions of any company or companies or their securities mentioned herein are not intended to be complete and this report is not, and should not be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. Dion has not taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. This report is not to be relied upon in substitution for the exercise of independent judgment. Opinions or estimates expressed are current opinions as of the original publication date appearing on this report and the information, including the opinions and estimates contained herein, are subject to change without notice. Dion is under no duty to update this report from time to time. Dion or its associates including employees engaged in preparation of this report and its directors do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report, including but not restricted to, fluctuation in the prices of securities, changes in the currency rates, diminution in the NAVs, reduction in the dividend or income, etc.
The investments or services contained or referred to in this report may not be suitable for all equally and it is recommended that an independent investment advisor be consulted. In addition, nothing in this report constitutes investment, legal, accounting or tax advice or a representation that any investment or strategy is suitable or appropriate to individual circumstances or otherwise constitutes a personal recommendation of Dion. REGULATORY DISCLOSURES: Dion is engaged in the business of developing software solutions for the global financial services industry across the entire transaction lifecycle and interalia provides research and information services essential for business intelligence to global companies and financial institutions. Dion is listed on BSE Limited (BSE) and is also registered under the SEBI (Research Analyst) Regulations, 2014 (SEBI Regulations) as a Research Analyst vide Registration No. INH100002771. Dion s activities were neither suspended nor has it defaulted with requirements under the Listing Agreement and / or SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 with the BSE in the last five years. Dion has not been debarred from doing business by BSE / SEBI or any other authority. In the context of the SEBI Regulations, we affirm that we are a SEBI registered Research Analyst and in the course of our business, we issue research reports /research analysis etc that are prepared by our Research Analysts. We also affirm and undertake that no disciplinary action has been taken against us or our Analysts in connection with our business activities. In compliance with the above mentioned SEBI Regulations, the following additional disclosures are also provided which may be considered by the reader before making an investment decision: 1. Disclosures regarding Ownership Dion confirms that: (i) It/its associates have no financial interest or any other material conflict in relation to the subject company (ies) covered herein at the time of publication of this report. (ii) It/its associates have no actual / beneficial ownership of 1% or more securities of the subject company (ies) covered herein at the end of the month immediately preceding the date of publication of this report. Further, the Research Analyst confirms that: (i) He, his associates and his relatives have no financial interest in the subject company (ies) covered herein, and they have no other material conflict in the subject company at the time of publication of this report. (ii) He, his associates and his relatives have no actual/beneficial ownership of 1% or more securities of the subject company (ies) covered herein at the end of the month immediately preceding the date of publication of this report. 2. Disclosures regarding Compensation: During the past 12 months, Dion or its Associates: (a) Have not managed or co-managed public offering of securities for the subject company (b) Have not received any compensation for investment banking or merchant banking or brokerage services from the subject company (c) Have received compensation for products or services other than investment banking or merchant banking or brokerage services from the subject. (d) Have not received any compensation or other benefits from the subject company or third party in connection with this report 3. Disclosure regarding the Research Analyst s connection with the subject company: It is affirmed that I, Kaushal Patel employed as Research Analyst by Dion and engaged in the preparation of this report have not served as an officer, director or employee of the subject company 4. Disclosure regarding Market Making activity: Neither Dion /its Research Analysts have engaged in market making activities for the subject company. Copyright in this report vests exclusively with Dion. Geojit BNP Paribas, 34/659-P, Civil Lane Road, Padivattom, Kochi 682024. Toll Free Number: 1800-425-5501 / 1800-103-5501, Paid Number: 91 0484 3911777, Email id: customercare@geojit.com Research Entity SEBI Registration Number: INH200000345