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 134,591 133,303 135,685-0.8 1.0 Interest expended 78,693 81,717 76,064 3.5-3.7 Net interest income 55,898 51,585 59,622-6.2 8.4 Other income 33,879 34,293 30,172 12.3-1.2 Total Net Income 89,778 85,878 89,794 0.0 4.5 Operating expenses 37,944 33,731 38,674-1.9 12.5 Pre-provision profits 51,833 52,147 51,120 1.4-0.6 Provisions 26,087 25,145 28,982-10.0 3.7 Tax expense 5,256 4,679 1,892 177.8 12.3 Reported Net Profit 20,490 22,324 20,246 1.2-8.2 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 17.8 15.6 15.8 P/ABV 2.1 2.1 1.9 ROAA 1.4 1.4 1.3 ROAE 10.3 11.5 11.2 Estimates (` mn) FY17 FY18E FY19E NII 217,373 230,096 259,800 PPP 264,867 246,238 263,546 PAT 98,011 97,741 122,074 Adj. BV 142.7 145.4 158.9 Sr. Analyst: Shweta Dapatardar Tel: +9122 4096 9715 E-mail: shwetad@dolatcapital.com Advances (` mn) 4,640,752 4,494,265 4,642,321 0.0 3.3 CASA (%) 49.0 45.1 50.4-140 390 Gross NPA (%) 8.0 5.9 7.9 10 212 July 28, 2017
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, 2017 2
Income Statement (` mn) Interest income 527,394 541,563 539,704 623,471 Interest expense -315,154-324,190-309,609-363,671 Net interest income 212,240 217,373 230,096 259,800 growth (%) 11 2 6 13 Non-interest income 153,231 195,045 191,869 193,518 Operating income 365,471 412,418 421,964 453,318 Operating expenses -126,836-147,551-175,727-189,772 - Staff expenses 50,023 57,337 73,890 93,645 Pre-provisions profit 238,635 264,867 246,238 263,546 growth (%) 0 0 0 0 Provisions & Contingencies -116,678-152,081-124,061-98,582 Pre-tax profit 121,957 112,786 122,177 164,965 Tax (current + deferred) -24,694-14,775-24,435-42,891 Net profit 97,263 98,011 97,741 122,074 growth (%) -13 1 0 25 Balance Sheet (` mn) Cash 598,687 757,131 792,550 834,202 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 575,737 625,345 738,983 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 347,264 342,452 355,133 356,158 Share capital 11,632 11,651 12,890 12,890 Reserves & surplus 889,224 987,860 1,035,833 1,110,500 Shareholders funds 900,856 999,511 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 (`) 16.7 16.8 19.2 18.9 BVPS (`) 154.3 171.6 162.7 174.3 Adjusted Book NAV/share (`) 139.2 142.7 145.4 158.9 PER (x) 17.9 17.8 15.6 15.8 Price/Book (x) 1.9 1.7 1.8 1.7 Price/Adjusted book (x) 2.1 2.1 2.1 1.9 Dividend Yield (%) 1.7 0.8 1.2 2.0 Du-Pont ratios NII/Avg. Assets (%) 3.1 2.9 2.8 2.5 Non-int. inc/avg Assets (%) 2.2 2.6 2.4 2.1 Cost / Avg Assets (%) 1.9 1.98 1.9 2.0 Non-tax Prov/Avg Assets (%) 1.1 2.0 1.5 1.1 Tax Prov. / Avg Assets (%) 0.4 0.2 0.3 0.5 ROA (%) 1.5 1.4 1.4 1.3 Leverage (x) 8.0 7.9 8.0 8.6 ROE (%) 11.3 10.3 11.5 11.2 Balance Sheet ratios Loan growth (%) 12.3 6.7 13.8 15.5 Deposit growth (%) 16.6 16.3 14.5 19.8 Loans/Deposits (%) 103.3 94.7 94.2 90.8 Investments/Deposits (%) 38.1 33.0 30.5 27.6 CASA ratio (%) 45.8 50.4 47.9 47.5 Profitability ratios NIMs (%) 3.5 3.3 3.2 3.2 Interest spread (%) 2.8 3.0 2.9 2.9 Yield on advances (%) 9.5 8.9 8.4 8.6 Cost of deposits (%) 5.9 5.4 5.4 5.3 Efficiency/other P/L ratios Non-interest income/net income (%) 41.9 47.3 45.5 45.5 Trading income/net income (%) 10.4 20.9 8.5 8.1 Cost/Income (%) 34.7 35.8 41.6 41.9 Asset quality ratios Gross NPLs (%) 5.2 7.9 8.4 6.9 Net NPLs (%) 2.7 4.9 3.2 2.5 Net NPLs/Net worth (%) 14.4 25.5 15.7 13.0 Loan prov/avg loans (%) 2.8 3.4 2.6 1.6 Provisions cover (%) 61.0 53.6 64.0 66.0 Capitalisation ratios Tier I cap.adequacy (%) 13.1 14.4 13.7 12.8 Total cap.adequacy (%) 16.6 17.4 16.8 16.1 E Estimates July 28, 2017 3
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 338 269 350 May-17 Buy 370 297 250 150 50 DART Team Purvag Shah Managing Director purvag@dolatcapital.com +9122 4096 9747 Amit Khurana, CFA Head of Equities amit@dolatcapital.com +9122 4096 9745 CONTACT DETAILS Equity Sales Designation E-mail Direct Lines Kishor Bagri, CFA VP - Equity Sales kishorb@dolatcapital.com +9122 4096 9746 Kartik Sadagopan VP - Equity Sales kartiks@dolatcapital.com +9122 4096 9762 Kapil Yadav VP - Institutional Sales kapil@dolatcapital.com +9122 4096 9735 Yomika Agarwal VP - FII Sales yomika@dolatcapital.com +9122 4096 9773 Equity Trading Designation E-mail P. Sridhar VP and Head of Sales Trading sridhar@dolatcapital.com +9122 4096 9728 Chandrakant Ware AVP - Equity Sales Trading chandrakant@dolatcapital.com +9122 4096 9707 Derivatives Trading Designation E-mail Shirish Thakkar AVP - Derivatives shirisht@dolatcapital.com +9122 4096 9702 Hardik Mehta Sales Trader hardikm@dolatcapital.com +9122 4096 9748 Dolat Capital Market Private Limited. 20, Rajabahadur Mansion, 1st Floor, Ambalal Doshi Marg, Fort, Mumbai - 400 001
Analyst(s) Certification The research analyst(s), with respect to each issuer and its securities covered by them in this research report, certify that: All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and No part of his or her or their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this research report. I. Analyst(s) and Associate (S) holding in the Stock(s): (Nil) II. Disclaimer: This research report has been prepared by Dolat Capital Market Private Limited. to provide information about the company(ies) and sector(s), if any, covered in the report and may be distributed by it and/or its affiliated company(ies) solely for the purpose of information of the select recipient of this report. This report and/or any part thereof, may not be duplicated in any form and/or reproduced or redistributed without the prior written consent of Dolat Capital Market Private Limited. This report has been prepared independent of the companies covered herein. Dolat Capital Market Private Limited. and its affiliated companies are part of a multi-service, integrated investment banking, brokerage and financing group. Dolat Capital Market Private Limited. and/or its affiliated company(ies) might have provided or may provide services in respect of managing offerings of securities, corporate finance, investment banking, mergers & acquisitions, financing or any other advisory services to the company(ies) covered herein. Dolat Capital Market Private Limited. and/or its affiliated company(ies) might have received or may receive compensation from the company(ies) mentioned in this report for rendering any of the above services. Research analysts and sales persons of Dolat Capital Market Private Limited. may provide important inputs to its affiliated company(ies) associated with it. While reasonable care has been taken in the preparation of this report, it does not purport to be a complete description of the securities, markets or developments referred to herein, and Dolat Capital Market Private Limited. does not warrant its accuracy or completeness. Dolat Capital Market Private Limited. may not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This report is provided for information only and is not an investment advice and must not alone be taken as the basis for an investment decision. The investment discussed or views expressed herein may not be suitable for all investors. The user assumes the entire risk of any use made of this information. The information contained herein may be changed without notice and Dolat Capital Market Private Limited. reserves the right to make modifications and alterations to this statement as they may deem fit from time to time. Dolat Capital Market Private Limited. and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions. This report is neither an offer nor solicitation of an offer to buy and/or sell any securities mentioned herein and/or not an official confirmation of any transaction. This report is not directed or intended for distribution to, or use by any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject Dolat Capital Market Private Limited. and/or its affiliated company(ies) to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to a certain category of investors. Persons in whose possession this report may come, are required to inform themselves of and to observe such restrictions. For U.S. Entity/ persons only: This research report is a product of Dolat Capital Market Private Limited., which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker-dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account. This report is intended for distribution by Dolat Capital Market Private Limited. only to "Major Institutional Investors" as defined by Rule 15a- 6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person or entity. In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, Dolat Capital Market Private Limited. has entered into an agreement with a U.S. registered broker-dealer Ltd Marco Polo Securities Inc. ("Marco Polo"). Transactions in securities discussed in this research report should be effected through Marco Polo or another U.S. registered broker dealer/entity as informed by Dolat Capital Market Private Limited. from time to time. Dolat Capital Market Private Limited. Corporate Identity Number: U65990MH1993PTC075189 Member: BSE Limited and National Stock Exchange of India Limited. SEBI Registration No: BSE - INB010710052 & INF010710052, NSE - INB230710031& INF230710031, Research: INH000000685 Registered office: Office No. 141, Centre Point, Somnath, Daman 396 210, Daman & Diu Board: +9122 40969700 Fax: +9122 22651278 Email: research@dolatcapital.com www.dolatcapital.com Our Research reports are also available on Reuters, Thomson Publishers, DowJones and Bloomberg (DCML <GO>)