Mumbai: ICICI Bank Ltd’s September quarter numbers do much to justify investor faith in the stock in recent times. After a long dry run, the stock finally started to beat the Bankex index since the June quarter results.
The September numbers continue the trend of robust profitability seen for some time now. Net profits grew 30% from a year ago to Rs.1,956 crore, bettering street expectations. This, in turn, was driven by a 35.7% rise in operating profit, again a best for at least eight quarters.
A major reason for the rise in operating profits was growth in loan volumes and expansion in margins. ICICI Bank grew its loans 18% from a year ago, which just bettered the industry growth rate. However, note that the bank has clearly said in the past that its turnaround strategy hinged on a return to profitability. The clear growth in net interest margins over the past five years shows the focus.
In the September quarter, net interest margin gained 40 basis points from a year ago to 3%; that meant net interest income grew a strong 34.5%. Alongside, ICICI has also been successful in pruning costs. The bank’s cost to income ratio dipped to 40.9% compared with 44.4% a year ago.
Not only that, the bank has been able to restrain its bad loan problem, despite a Rs.500 crore exposure to Deccan Chronicle Holdings Ltd. Including that, fresh slippages amounted to Rs.1,200 crore in September, a bit above the Rs.800-900 crore run rate in earlier quarters.
Gross non-performing assets as a proportion of total loans stood at 3.54%, the same level as at the end of June. Secondly, restructured assets were flat at Rs.4,158 crore compared with Rs.4,172 crore at the end of June. In a conference call, the bank’s management said it had Rs.500 crore in the corporate restructuring debt cell pipeline, though it remained silent on other kinds of loan recast deals.
The overall numbers justify ICICI Bank’s increase in valuation. The discount at which the bank trades to private sector rivals such as Axis Bank Ltd has reduced in recent times.
Are these numbers sustainable? After all, even the 18% increase in the loan book was driven by corporate deals. Retail loans, while they have picked up, still need to do better. Secondly, will the bank be able to maintain this run rate of slippages when the economy is on a slippery slope? The answers to these will determine whether the stock will continue to rise.