ICICI Bank reported a 21% y-o-y rise in net profit, driven by better non-interest income (led by treasury gains). Other highlights were improving productivity and asset quality.
NIM was maintained at 2.4%, CASA improved Rs13 billion q-o-q, its share up 170bps q-o-q to 30.4% (management’s target is 33% for FY10).
The bank continues to lose unsecured retail loans; their share of the loan book now at 48.6% (vs 57% last year). Capital adequacy, at 17.4%, is adequate, with high Tier-1 (13.1%) offering comfort.
The focus on keeping operating expenses in tight check continues. While cost-income declined 1,482bps to 37.9%, cost-assets declined 41bps y-o-y to 1.6%.
With 580 branches expected to be added in FY10, keeping costs low remains a challenge. So far, its capability has been demonstrated by ICICI.
Gross NPAs fell 2.4% q-o-q, with coverage levels are stable at 51%. Although a further Rs14.5 billion in loans was restructured, Rs32 billion of restructured loans was upgraded. This led to total restructured loans declining 29.7% q-o-q to Rs41.5 billion, or 2.1% of advances.
At our target price of Rs899, the stock would trade at 2.1x FY10e and 2x FY11e ABV. Our target of Rs755 for the standalone bank is based on the two-stage DDM (CoE: 15.1%; beta: 1.3; Rf: 6.5%). We value the subsidiaries at Rs144.