ICICI Bank’s Q3FY09 PAT declined by 35% y-o-y and 42% q-o-q at Rs7.4 billion, which was largely in-line with market and our expectations.
Positive takeaways from the quarterly results such as 9% q-o-q growth in CASA (loss in brand image getting restored) and 20bps q-o-q improvement in margins to 2.6% as funding costs improve.
Retail slippage shows some stabilisation (but could be too early to call on the trend decisively) stress on corporate portfolio in the coming quarters will hold the key.
We have revised our FY10 earnings upwards by 18.4% on the back of better net interest income (NII) growth driven by much better margin expansion than expected earlier.
The downward trend in fee income seems to have stabilised, but generally the fourth quarter is better than other quarters. Hence, the performance could be interpreted as a mixed one and sustainability or improvement needs to be reviewed, going forward.
We feel that the market is looking towards any meaningful deviation from previous trends for asset quality.
The gross NPL additions adjusted for write-offs and sale to ARCIL stood at Rs12.5 billion compared to Rs12 billion in Q3FY09. Hence, there has been no major increase q-o-q.
However, if we consider Rs11.2 billion restructured assets and further Rs20bn worth of applications for restructuring (all standard assets), ~1.4% of total advances we conclude that asset quality pressures still remain.
The improvement in CASA and margins should continue. However, pressure on asset quality remains.
In the near term, the positive global sentiment and better-than-expected performance on margins and asset quality front is likely to provide some upside from the current levels.
At the CMP, the stock is quoting at 8.9x FY10E EPS, 0.8x FY10E BV and 0.9x FY10E ABV. We maintain ACCUMULATE rating on the stock, with a revised price target of Rs475.