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ICICI Bank Q3FY18: Weak Operational Peformance; HOLD

Reliance Securities | 06 Feb, 2018  | Follow Author | Add to my Favourites 
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ICICI Bank continued to surprise negatively on core operating and credit cost front in 3QFY18. Its operating profit dipped by 8.4% YoY and 27.6% % QoQ to Rs50.6bn led by lower other income and a muted growth in net interest income. The Bank’s NII remained subdued at Rs57.1 bn (+6.4% YoY & -0.1% QoQ) despite continued growth revival in domestic loan growth and sustained higher CASA base. Domestic NIMs continued to decline to 3.53% compared to 3.57% in 2QFY18 and 3.96% in 4QFY18. Further, core fee income remained subdued at Rs26.4bn (5.8% YoY and 2.7% QoQ), which clearly indicates that improving balance sheet metrics are not percolating down to operating profit level. However, the Bank witnessed sequential moderation in fresh slippages to Rs43.8bn from Rs46.7bn in 2QFY18 and Rs49.8bn in 1QFY18.

Key Management Commentary & Guidance

The Bank do not require any disclosure on asset quality divergence from AQR audit by the RBI for FY17, as it is below the threshold level of 15% of reported gross NPA.

Credit cost is expected to increase from the current level in 4QFY18, as the Bank will provide additional provisioning required for account refereed to NCLT 1 & 2. However, the impact of same on PAT is expected to be lower, as the Bank may get one-time gain on sale of its stake through Offer for Sale in upcoming IPO of ICICI Securities, which has filed DRHP with SEBI and currently IPO is under regulatory approval process.

The Bank continues to wind down its low-margin international business, as its international loan book – which declined by 14.6% YoY – now constitutes only 14% of total loan book.

International NIMs of the Bank declined by 66bps QoQ to 0.29%.

The Management does not expect any rise in overall stress from the current level in FY19. However, slippages trajectory is expected to remain volatile over FY19 due to higher concentration of corporate loans in stressed asset portfolio.

The Bank’s loan book grew by 4.7% QoQ on the back of strong growth in SME and Retail loan book.

Outlook & Valuation

Looking ahead, we believe weak operating profit performance and elevated credit cost will continue to negative impact overall performance of the Bank in next few quarters. While the Bank continues to deliver improved performance across its retail business franchise on assets, liabilities and retail fees front, the corporate segment continues to drag its overall performance on asset quality, business growth and NIM front. Hence, we maintain our HOLD recommendation on the stock with a revised Target Price of Rs305 (from Rs284 earlier) valuing parent at 1.5x FY19 Adj. BV and subsidiaries at Rs96 (after 20% holding company discount)

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About Reliance Securities

Reliance Securities, the broking arm of Reliance Capital, is one of the India’s leading retail broking houses, providing customers with access to equities, derivatives, currency, IPOs, mutual funds, bonds, and corporate FDs amongst others. The large array of financial offerings helps customers fulfilling their investment objectives on one platform. Focus on timely & error-free execution represents its core strength. Their best in class research offerings, high degree of compliance with stock exchange regulations, ethical business standards, & strong risk management capabilities; Reliance Securities positions itself amongst strong & innovative brands in the financial services space.

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Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor accept any liability whatsoever arising from the use of any of the above contents.


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