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STOCK UPDATE ICICI Bank
Cluster: Apple Green
Recommendation: Buy
Price target: Rs1,070
Current market price: Rs861 Robust growth in profits; maintain Buy Result highlights -
ICICI Bank's Q4FY2012 earnings were significantly ahead of our as well as the street's estimates as the net profit grew by 31% year on year (YoY; 10% quarter on quarter [QoQ]) to Rs1,902 crore. The growth in profits was driven by a strong growth in the net interest income (NII) and non interest income. -
Aided by a 30bps sequential increase in the net interest margin (NIM; 3.01% vs 2.7% in Q3FY2012) the NII grew by 23.7% YoY (14.5% QoQ). The transmission of base rate, rise in investment yields and rundown of securitisation losses fueled growth in NIM. -
Business growth remained healthy as advances grew by 17.3% YoY (3.1% QoQ) whereas the deposits grew by 13.3% YoY. The current account - savings account (CASA) ratio remained stable at 43.5% while the average CASA balances were 39% in Q4FY2012. -
The non interest income increased by 35.8% YoY (17.8% QoQ) on account of a strong growth in the dividend income and treasury profits. The fee income growth remained subdued as it declined by 3.5% YoY. -
Improvement in asset quality continued for the seventh quarter in a row as the gross and net non performing assets (NPAs) declined to 3.62% and 0.73% respectively. The provision coverage ratio (PCR) also improved during the quarter to 80.4% from 78.9% in Q3FY2012. The bank restructured an additional Rs1,400 crore of advances during the quarter taking the total restructured book to Rs4,256 crore (1.7% of advances). -
Valuation: ICICI Bank's Q4FY2012 results mark a significant improvement in margins and asset quality, leading to an improvement in the earning profile. We expect the bank's earnings to grow at a compounded annual growth rate (CAGR) of 15% YoY (FY2012-14) contributing to an return on assets (ROA) of 1.5%. We maintain our Buy recommendation on the stock with a sum of the parts (SOTP) based target price of Rs1,070.
VIEWPOINT
Idea Cellular Strong traffic growth enhances revenue, but policy uncertainty continues Idea Cellular (Idea)'s Q4FY2012 results displayed strong operational and execution strength by the company wherein in a tough quarter it continued to gain subscribers as well as traffic growth with expansion on the margin front. What happened in the quarter gone by? -
Strong top line driven by traffic growth: The top line grew at 6.7% sequentially, that is by an approximately 3.2% higher rate than our estimate. The same was largely led by high tariff growth, increased share of value added services (VAS; at 14.3% vs 13.7% in Q3FY2012) and roaming revenues. -
Reported OPM down; adjusted profit sees expansion: The reported operating profit margin (OPM) was down 145 basis point on a sequential basis from 26.7% in Q3FY2012 to 25.3% in Q4FY2012, largely led by an increase in the network operating cost (+60 basis points quarter on quarter [QoQ]) coupled with license and WPC charges (+260 basis points QoQ). Thus the operating profit grew by a mere 1% and stood at Rs1,357 crore. This reported figure includes a one time charge of Rs150 crore booked by the company in its network operating cost. Adjusting for the same , the OPM expanded by 50 basis points on a Q-o-Q basis. -
Net profit growth supported by low interest and low effective tax rate: Despite a modest rise in the operating profit, the net profit for the quarter rose by 18.9% on a sequential basis. The same was led by lower finance cost (-21% QoQ; due to repayment of Rs1,826 crore worth of loans) coupled with a dip in the effective tax rate (the tax rate stood at 30.8% in Q4FY2012 vs 32.8% in Q3FY2012).
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