ICICI Bank - Q2FY12 analysis & stock recommendation
The following are the key parameters of the banks financials:
| Particulars (Rs/Cr) | Q2 FY12 | Q2 FY11 |
| Net Profit | 1503.19 | 1236.27 |
| CASA (%) | 42.1 | 44 |
| NIM (%) | 2.6 | 2.6 |
| CAR (%) | 18.99 | 20.23 |
| Provisions | 318.79 | 641.14 |
| Gross NPA (%) | 4.14 | 5.03 |
| Net NPA (%) | 0.93 | 1.62 |
| Return on Assets (%) | 1.41 | 1.31 |
| Revenue | Profit | |||||
| Segment (Rs/Cr) | Q2 FY12 | Q2 FY11 | % Change | Q2 FY12 | Q2 FY11 | % Change |
| Treasury Operations | 7230.43 | 5597.34 | 29.18 | 347.12 | 430.97 | -19.46 |
| Wholesale Banking | 6344.67 | 4625.18 | 37.18 | 1595.29 | 1210.68 | 31.77 |
| Retail Banking | 4852.42 | 3943.78 | 23.04 | 105.6 | -116.74 | 190.46 |
| Other Banking operations | 65.5 | 130.73 | -49.9 | -13.05 | 45.89 | -128.44 |
| Less Inter segment | 8595.85 | 6410 | 34.1 | |||
| Total | 9897.17 | 7887.03 | 25.49 | 2034.96 | 1570.8 | 29.55 |
The bank’s Net Interest Margin (NIM) remained stable at 2.6%. The NIM from domestic business stood at 2.09% while that of its international business stood at 1.09%. The bank’s fee-based income, which includes transaction fees, derivatives and forex increased by 7% to Rs 1700 crore.
The operating expenses increased by 20.49% to Rs 1892.24 crore on a YoY basis. This was due to employee expense, which increased by 35% to Rs 842.7 crore. Last year, the bank’s employee strength stood at 48500, against the current strength of 59300 employees. As per the management, the hiring process is done as of now, and the bank will not require more staff in the next couple of quarters (in case of attrition, the required positions will be filled in).
The advances of the bank grew by 20% to Rs 233952 crore on a YoY basis. It registered a 9.86% growth in deposits to Rs 245091.72 crore. The management believes that advances and deposit growth for FY12 will be at 18%.
ICICI Bank’s CASA ratio was down by 190 basis points to 42.1% on a YoY basis. Maintenance of the CASA ratio would be challenging in the coming quarters, with the Savings interest rate deregulated by the RBI. Some of the smaller banks like Kotak Mahindra Bank and YES Bank have already made the first move in this regard. YES bank has increased its Savings interest rate for all Savings accounts by 200 basis points to 6%. Kotak Mahindra Bank will offer 6% on Savings deposits of more than Rs 1 lakh and 5.5% on deposits upto Rs 1 lakh. Therefore, ICICI expects its CASA ratio to be in the range of 38-40% by the end of FY12.
The gross NPAs came down by 89 basis points to 4.14%. The Net NPAs dropped below 1% and stood at 0.93 basis points, which is down by 69 basis points on a YoY basis and down by 11 basis points sequentially. The bank’s Return on Assets (ROA) also improved by 10 basis points to 1.41%.
As the NPAs of the bank came down, it made fewer provisions for the quarter. On a YoY basis, the provisions reduced by 50% to Rs 318.79 crore, which also helped to drive the bank’s profits further. Its Capital Adequacy Ratio (CAR) decreased by 124 basis points to 18.99% on a YoY basis, of which Tier 1 CAR stood at 13.14%.
Profit from Treasury operations witnessed a de-growth of 19.46% to Rs 347.12 crore on account of a weak bond market. The retail banking segment saw a profit of Rs 105 crore, as against a loss of 116 crore in Q2 FY11. As of September 30, 2011, the bank’s total number of branches stood at 2500.
ICICI Bank has less than 1% exposure to the textile industry, and its exposure to the power sector is 5%. 30 to 35 per cent of the funding is for working capital finance, which is not considered as risky. Its exposure to the airline industry majorly includes Air India bonds, which are also secured by the government.
Overall, the bank has posted good numbers for the quarter. The scrip is currently trading 2.53% down to Rs 906.95. It seems that the bank would apply a wait-and-watch strategy for deregulating their Savings interest rate. We anticipate that it will also raise the Savings interest rate in the range of 100-200 basis points. The management believes that the bank will be able to maintain Net Interest Margins in the coming quarters, and the credit growth expectation is in line with the RBI’s growth projection of 18%.
With interest rates almost reaching a peak, we at DSIJ expect the bank to perform well in the coming quarters. Hence, one can invest in the scrip in a staggered manner.
The operating expenses increased by 20.49% to Rs 1892.24 crore on a YoY basis. This was due to employee expense, which increased by 35% to Rs 842.7 crore. Last year, the bank’s employee strength stood at 48500, against the current strength of 59300 employees. As per the management, the hiring process is done as of now, and the bank will not require more staff in the next couple of quarters (in case of attrition, the required positions will be filled in).
The advances of the bank grew by 20% to Rs 233952 crore on a YoY basis. It registered a 9.86% growth in deposits to Rs 245091.72 crore. The management believes that advances and deposit growth for FY12 will be at 18%.
ICICI Bank’s CASA ratio was down by 190 basis points to 42.1% on a YoY basis. Maintenance of the CASA ratio would be challenging in the coming quarters, with the Savings interest rate deregulated by the RBI. Some of the smaller banks like Kotak Mahindra Bank and YES Bank have already made the first move in this regard. YES bank has increased its Savings interest rate for all Savings accounts by 200 basis points to 6%. Kotak Mahindra Bank will offer 6% on Savings deposits of more than Rs 1 lakh and 5.5% on deposits upto Rs 1 lakh. Therefore, ICICI expects its CASA ratio to be in the range of 38-40% by the end of FY12.
The gross NPAs came down by 89 basis points to 4.14%. The Net NPAs dropped below 1% and stood at 0.93 basis points, which is down by 69 basis points on a YoY basis and down by 11 basis points sequentially. The bank’s Return on Assets (ROA) also improved by 10 basis points to 1.41%.
As the NPAs of the bank came down, it made fewer provisions for the quarter. On a YoY basis, the provisions reduced by 50% to Rs 318.79 crore, which also helped to drive the bank’s profits further. Its Capital Adequacy Ratio (CAR) decreased by 124 basis points to 18.99% on a YoY basis, of which Tier 1 CAR stood at 13.14%.
Profit from Treasury operations witnessed a de-growth of 19.46% to Rs 347.12 crore on account of a weak bond market. The retail banking segment saw a profit of Rs 105 crore, as against a loss of 116 crore in Q2 FY11. As of September 30, 2011, the bank’s total number of branches stood at 2500.
ICICI Bank has less than 1% exposure to the textile industry, and its exposure to the power sector is 5%. 30 to 35 per cent of the funding is for working capital finance, which is not considered as risky. Its exposure to the airline industry majorly includes Air India bonds, which are also secured by the government.
Overall, the bank has posted good numbers for the quarter. The scrip is currently trading 2.53% down to Rs 906.95. It seems that the bank would apply a wait-and-watch strategy for deregulating their Savings interest rate. We anticipate that it will also raise the Savings interest rate in the range of 100-200 basis points. The management believes that the bank will be able to maintain Net Interest Margins in the coming quarters, and the credit growth expectation is in line with the RBI’s growth projection of 18%.
With interest rates almost reaching a peak, we at DSIJ expect the bank to perform well in the coming quarters. Hence, one can invest in the scrip in a staggered manner.
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