Recommendation: Buy
CMP = Rs 1,173
Price target: Rs 1,528
Result highlights:
- ICICI Bank has reported a profit after tax (PAT) of Rs 1,230 crore for Q3FY2008. That's an increase of 35% year on year (yoy) and 22.7% quarter on quarter (qoq) on the back of an all-round growth. The Q3FY2008 PAT is marginally below our estimate of Rs 1,257 crore. During the quarter, the bank's net interest income grew by a strong 32% yoy and by 9.7% qoq to Rs 1,960 crore. The growth was primarily driven by an improvement in the net interest margin (NIM) and a strong credit growth.
- The reported NIM for the quarter stood at 2.3%, an improvement of seven basis points qoq over 2.23% in Q2FY2008. The NIM expansion was driven by improved yield on investments coupled with contained growth in the cost of funds.
- The reported non-interest income (including treasury gains) registered a strong growth of 22.5% yoy and 17.1% qoq, on the back of a significant growth in the fee income (up 32.7% yoy). The strong fee income growth, despite the slowing retail advances, was due to the increased focus on third party distribution of financial products coupled with an improvement in the fee income from the corporate and international segments. Notably, the treasury income declined by 9% yoy to Rs282 crore in Q3FY2008 owing to a provision of Rs1,500 crore for the mark-to-market losses arising from the credit derivative portfolio.
- The provisioning for the quarter was up 14% yoy, in line with the uptick in the non-performing assets and focus on unsecured advances, which offer higher yields. The bank's capital adequacy ratio (CAR) as at end of Q3FY2008 stood at a healthy 15.8% with a Tier-1 CAR of 12.1% due to the capital raised through the follow-on public offering in June 2007.
- The bank has received the board's approval for the proposed capital raising exercise for ICICI Securities. The bank plans to dilute a maximum of 15% (of the post-issue capital of ICICI Securities) through an initial public offering and private placement in three to six months. ICICI Bank's other subsidiaries continue to do well with leading market share in their respective spaces.
- At current market price of Rs 1,173, the stock is trading at 25.4x its earnings per share for 2009E, 12.3x pre-provisioning profit for 2009E and 2.6x its book value for 2009E.
- I maintain buy call on this stock with price target of Rs 1,528 around 6 months time frame.
