| Recommendation | CMP | Target Price | Time Horizon |
| Accumulate | Rs. 711 | Rs. 945 | 12 Months |
ICICI Bank is an Indian multinational bank and financial services company with its corporate office in Mumbai, Maharashtra. It offers a wide range of banking products and financial services for corporate and retail customers through a variety of delivery channels and subsidiaries in the areas of investment banking, life, non-life insurance, venture capital and asset management. ICICI Bank is the second largest Private bank of the country with the loan book of around 11 lakhs crore. Under the new leadership of Mr Sandeep Bakhshi bank performance has improved drastically as loan growth is finally coming back, margins improving and NPA condition is finally improving.
Stock Details |
|
| Market Cap. (Cr.) | 494499.00 |
| Face Value | 2.00 |
| Equity (Cr.) | 1383.41 |
| 52 Wk. high/low | 860/531 |
| BSE Code | 532174 |
| NSE Code | ICICIBANK |
| Book Value (Rs) | 247.30 |
| Industry | Private Bank |
| P/E | 22.05 |
Share Holding Pattern % |
|
Promoter |
– |
| FIIs | 56.24 |
| Institutions | 12.46 |
| Non Promoter Corp. | 22.55 |
| Public & Others
Government |
8.56
0.19 |
| Total | 100.00 |
Price Chart
Key Investment Rationale:
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In last 12 quarter performance of ICICI Bank is consistently improving which is the biggest reason street has turn positive on this bank, one of the target of new management was to achieve 15% RoE which has been accomplished in this quarter. The next leg will aim to sustain and improve on this RoE further.
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Stability of the top management has helped the bank in improving their operational performance. Sandeep Bakhshi’s appointment as CEO brought stability which has improved financials and stock performance and re-rated the bank performance as bank delivered 31% CAGR in m-cap since FY18-21 v/s 7% over FY10-18.
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Gross NPA of the bank was 5.42% on 31st Dec 2020, which has fallen to 4.13% in December quarter 2021, net NPA consistently falling from 1.26% to 0.85%, and provision coverage ratio has also improved from 77.6% to 80.1%.
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One of the biggest improvement seen in last few years in that ICICI Bank is leading the credit growth in the country .In December quarter Domestic loan growth of the bank was 17.9% which is higher than other private Bank. Bank deposit franchisee is also improving as CASA ratio now stand at 44.9%.
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ICICI Bank is investing heavily on technology, which is helping bank in acquiring new customer and gaining traction among its customer as iMobile pay transaction has gone up 3.3x.
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In Q3FY22 Retail loans grew 19% YoY and 5% QoQ, within which Home/Personal loans grew 5%/8% QoQ. Growth in Credit Cards/Vehicle loan book stood at 15%/4% QoQ
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ICICI Bank has very strong capital position as it has capital adequacy of 18.33%, so bank don’t have to dilute in near term.
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ICICI Bank has a very valuable subsidiaries, there subsidiaries are also showing strong performance, Bank can also unlock value from these subsidiaries.
Outlook:
ICICI Bank India’s second largest private sector Bank has been reporting a robust performance, led by strong core pre provision profit, strong loan growth, and steady asset quality. A healthy mix of the high yielding portfolio (Retail/Business Banking) and a low cost liability franchise with strong growth in CASA ratio is aiding margin expansion. The bank is witnessing strong recovery across key segments such as Retail, SME, and Business Banking. With a higher proportion of a floating rate loan book, as the rate cycle turn and RBI start to increase repo rate, we estimate portfolio yields to improve, resulting in buoyant margin. We expect credit growth to pick up in second half of FY23 as capacity utilization level of industries improving and ICICI Bank being the leader is going to be benefited by credit expansion. At CMP ICICI trade at 3.1x P/B on FY22 Book value, which is at discount compared to other peers like Kotak & HDFC Bank and value of its subsidiaries is ₹200 per share. So valuing the bank at 3.5x FY23 book value, we recommend BUY for the Target Price of ₹ 945.
Business Overview
Retail Banking
Banking Business registered robust growth and emerged as a key driver for retail business in the first 9month of FY22. Total Retail Deposits grew by 22.3 per cent to ₹7,09,085 crore from Rs.5,80,006 crore in the preceding year while Retail Advances rose by 18.6% to ₹ 502420 crore from ₹ 423783 crore. The Personal Loan Business surged to nearly 56963 crore on the back of strong product offering and market share gain. ICICI Bank is gaining market share in the Auto Loans saw a growth of 5.5% in Q3FY22.In credit card segment bank saw a robust growth of 32% in Q3FY22, ICICI also gaining market share because of embargo on HDFC Bank and because of their partnership with Amazon. ICICI Bank issued total 12.4 million cards, and cards spend has increased almost 2.2x YoY in Q3FY22.Credit card spend market share has improved form 20.1% to 20.8% in third quarter of FY22.
Wholesale Banking
Wholesale Banking business focuses on institutional customers such as the Large and Emerging Corporates, SMEs and Government. This Business recorded a healthy 18.9% growth in Q3FY22. ICICI Bank always has a strong wholesale book earlier was projected as a corporate lender, in Q3FY22 corporate book was 33% of the total loan book. The Bank ended the year under review with a domestic loan book size of Rs.276195 crore. Growth in SME business (34.2%, YoY) was mainly driven by the digital offerings and platforms like InstaBIZ (now 1 billion customers) and Merchant STACK. Growth trends has also been witnessed in the number of transactions in UPI-iMobile pay 3.3x, YoY, Scan to pay 3.2x, YoY and Pay to contact 1.5x, QoQ.
Deposit Book:
ICICI Bank has a very strong liability franchise, of the total deposit book CASA form 47% of the total deposits in Q3FY22 grew 16.4%/4.1% YoY/QoQ led by 20%/25% YoY growth in savings/current account while term deposits grew12% YoY. The average CASA ratio improved by 80bps QoQ.Cost of Deposit of the company in Q3FY22 stand at 4.11%, which is higher by 40bps when compared to 2QFY22.
Restructuring
Over 95% of the loans for restructuring in the retail and business portfolio are secured loans. The bank has made two additional provisions in the third quarter, i.e. restructured provisions worth ₹4500 and provision on security receipt book for ₹4500 crore
Asset Quality:
The net non-performing assets declined by 10% sequentially to 7,344 crore at December 31, 2021 from 8,161 crore at September 30, 2021. The net NPA ratio declined to 0.85% at Dec 312021 from 0.99% at September 30, 2021. During Q3-2022, there were net deletions from gross NPAs of 191 crore, excluding write-offs and sale, compared to net additions of 96 crore in Q2-2022. The gross NPA additions declined to ` 4,018 crore in Q3-2022 from ₹ 5,578 crore in Q2-2022 and ` 7,231 crore in the quarter ended June 30, 2021. Recoveries and upgrades of NPAs, excluding write-offs and sale, were 4,209 crore in Q3-22. The gross NPAs written-off were 4,088 crore
Net Interest Income:
ICICI Bank NIM are consistently improving from 3.23% in FY20 FY18 to 3.96% in FY22, In Q3FY22 income tax refund during the quarter amounted to 6bps on NIM compared to 1bps in Q2FY22. Liquidity Coverage Ratio was 130% for the quarter. The cost of deposits remains low at 3.47%, down 6bps QoQ and the management has indicated that it has bottomed out. Yields on advances have declined 15bps QoQ to 8.19% in Q3FY22. 38% of the domestic loan book is linked to the repo rate and 7% to other external benchmarks. The management is looking to maintain NIM at 9MFY22 levels.
Capital Adequacy:
Bank has a very strong capital adequacy of 17.91% of which 16.93% is Tier 1 capital. ICICI Bank has enough capital for next 2 year and they will not diluted there equity in near future.
ROA:
One of the biggest improvement under the new management is improvement in ROA and ROE of the bank, ROA of the bank improved from 0.84% in FY18 to 1.9% in Q3FY22 and management has guided to improve ROA to 2%.ROE of the bank improved from 6.8% in FY18 to 14.5 in Q3FY22
Digital initiatives:
Technological expenses comprised 8.2% of the non-employee costs for 9MFY22.
The value of financial transactions on InstaBIZ for SME and Business Banking rose 68% YoY. The value of transactions through supply chain platforms increased 3.5x YoY in 3QFY22.
About 33%/43% of the home/personal loans were end-to-end digital in 9MFY22.
ICICI BANK SUBSIDIARIES:
ICICI Bank Prudential Life Insurance: ICICI Prudential Life Insurance Co. Ltd. is a joint venture between ICICI Bank and Prudential Corp. Holdings. The issuer offers protection for life and health along with pension products and services. In Q3FY22 gross premium up 2.1% YoY to Rs. 9,344cr and net premium up 1.1% YoY to Rs. 9,074cr, supported by well diversified product and distribution mix. VNB grew 34.8% YoY to Rs. 1,388cr in 9MFY22, aided by strong growth of 29.7% in new business premium during the same period.
ICICI Lombard General Insurance: is a private general insurance company, ICICI Lombard in Q3FY22 reported an in-line Q3 performance; weak growth in motor as well as retail health segments has been the major setback. Also, combined ratios (CoRs) have been elevated for the past few quarters (>105%), as health and motor saw increased claims on the back of steady normalization. It is expected that loss ratios in the health segment to stabilise and remain range-bound, owing to the rapid pace of vaccination and mild nature of the Omicron variant. Gross direct premium income has grown to 13311 Crore in 9M-2022 (9M-2021: ` 10525 crore) . Combined ratio was at 111% in 9M-2022 vs 9MFY21 of 99.1%.
ICICI Securities: Revenue grew by 51.9% to ₹ 942 crore in Q3-2022 from growth across all businesses , New client acquisition of 676,000 in Q3-2022; highest ever quarterly addition ,Overall active clients grew by 89% y-o-y to 3.1 million in Q3-2022 , Profit after tax grew by 41.2% y-o-y to ₹ 1042 crore in 9M-2022.
ICICI Prudential Asset Management: Average AUM grew by 23.0% y-o-y and 4.5% q-o-q to ₹ 4, 67,461 crore in Q3-2022, Profit after tax grew by 22.0% y-o-y to ₹ 1097 crore in 9MFY22.ICICI Prudential AMC is the leading AMC in the country.
(₹ in Crores)
| Balance Sheet | 2021 | 2020 | 2019 | 2018 |
| SOURCES OF FUNDS : | ||||
| Capital | 1383.41 | 1294.76 | 1289.46 | 1285.81 |
| Reserves Total | 156200.99 | 121661.81 | 112959.27 | 109338.32 |
| Minority Interest | 9588.34 | 6794.77 | 6580.54 | 6008.19 |
| Deposits | 959940.02 | 800784.46 | 681316.94 | 585796.11 |
| Borrowings | 143899.94 | 213851.78 | 210324.12 | 229401.83 |
| Other Liabilities & Provisions | 102874.23 | 90315.78 | 77941.26 | 64574.76 |
| Policy Holders Fund | 203180.04 | 145486.25 | 152378.75 | 131488.43 |
| TOTAL LIABILITIES | 1577070.07 | 1380193.1 | 1242795.02 | 1127899.02 |
| APPLICATION OF FUNDS : | ||||
| cash & Balances with RBI | 46302.21 | 35311.93 | 38066.28 | 33272.6 |
| Balances with Banks | 101268.33 | 92540.99 | 49324.62 | 55726.53 |
| Investments | 536578.62 | 443472.63 | 398200.76 | 372207.68 |
| Advances | 791801.39 | 706246.11 | 646961.68 | 566854.22 |
| Fixed Assets | 10809.26 | 10408.66 | 9660.42 | 9465.01 |
| Other Assets | 90310.27 | 92212.78 | 100581.26 | 90372.97 |
| TOTAL ASSETS | 1577070.08 | 1380193.1 | 1242795.02 | 1127899.01 |
| Contingent Liability | 3021344.23 | 3003053.53 | 2612071.93 | 1891035.82 |
| Bills for collection | 54846.38 | 48401.26 | 49579.19 | 28705.41 |
(₹ in Crores)
| Profit And Loss A/c | 2021 | 2020 | 2019 | 2018 |
| INCOME : | ||||
| Interest Earned | 79118.27 | 74798.32 | 63401.19 | 54965.89 |
| Other Income | 18968.53 | 16448.62 | 14512.16 | 17419.63 |
| <strongTotal | 98086.8 | 91246.94 | 77913.35 | 72385.52 |
| Expenditure | ||||
| Interest expended | 40128.84 | 41531.25 | 36386.4 | 31940.05 |
| Payments to/Provisions for Employees | 8091.78 | 8271.24 | 6808.24 | 5913.95 |
| Operating & Administrative Expenses | 5548.34 | 5486.58 | 4849.63 | 4252.34 |
| Depreciation | 1071.79 | 948.54 | 776.91 | 780.74 |
| Other Expenses, Provisions & Contingencies | 23063.32 | 20961.29 | 25315.42 | 22063.89 |
| Provision for Tax | 4665.66 | 3746.03 | 3360.6 | 2661.85 |
| Deferred Tax | -675.62 | 2371.2 | -2947.14 | -2004.72 |
| Total | 81894.12 | 83316.12 | 74550.06 | 65608.1 |
| Profit & Loss | ||||
| Reported Net Profit | 16192.68 | 7930.81 | 3363.3 | 6777.42 |
| Profit brought forward | 21327.47 | 17879.57 | 18495.26 | 18744.94 |
| Transfer to Statutory Reserve | 4048.2 | 1982.8 | 840.9 | 1694.4 |
| Transfer to Other Reserves | 2462.89 | 1854.8 | 2172.96 | 2910.32 |
| Trans. to Government /Proposed Dividend | 0 | 645.31 | 965.13 | 2422.39 |
| Balance carried forward to Balance Sheet | 31009.07 | 21327.47 | 17879.57 | 18495.26 |
| Equity Dividend % | 100 | 0 | 50 | 75 |
| Dividend Per Share (Rs) | 2 | 0 | 1 | 1.5 |
| Earnings Per Share | 23.41 | 12.25 | 5.22 | 10.54 |
| Book Value | 208.78 | 175.15 | 163.35 | 158.89 |
| Key Ratios | 2021 | 2020 | 2019 | 2018 |
| Credit-Deposit (%) | 80.95 | 86.52 | 90.54 | 92.92 |
| Investment / Deposit (%) | 31.16 | 32.11 | 33.84 | 34.68 |
| Cash / Deposit (%) | 4.77 | 5.14 | 5.85 | 6.17 |
| Interest Expended / Interest Earned (%) | 50.72 | 55.52 | 57.39 | 58.11 |
| Other Income / Total Income (%) | 19.34 | 18.03 | 18.63 | 24.07 |
| Operating Expenses / Total Income (%) | 21.98 | 23.69 | 23.06 | 21.46 |
| Interest Income / Total Funds (%) | 6.8 | 7.25 | 6.87 | 6.66 |
| Interest Expended / Total Funds (%) | 3.45 | 4.03 | 3.94 | 3.87 |
| Net Interest Income / Total Funds (%) | 3.35 | 3.22 | 2.93 | 2.79 |
| Non-Interest Income / Total Funds (%) | 1.63 | 1.59 | 1.57 | 2.11 |
| Operating Expenses / Total Funds (%) | 1.85 | 2.1 | 1.95 | 1.88 |
| Profit before Provisions / Total Funds (%) | 3.13 | 2.72 | 2.54 | 3 |
| Net Profit / Total funds (%) | 1.39 | 0.77 | 0.36 | 0.82 |
| RONW (%) | 12.56 | 7.25 | 3.24 | 6.81 |
Industry Overview:
The Banking industry in India has historically been one of the most stable systems globally, despite global upheavals. The government has consistently strived to promote financial inclusion through various initiatives targeted to bring the country’s underbanked population under the banking gamut. Assets of PSUs were nearly 60% of total banking assets. Bank Credit from FY16-20 has registered a CAGR of 3.6% and as of FY20 and total credit extended stand at $1.7 Trillion, deposits has registered a 14% CAGR from $1.15 Trillion (2016) to $2 Trillion (2021).
Indian Banks are expected to do very well for next 2-3 years, as economy is expected to expand in coming years, and ICICI being a leader in private bank is expected to gain market share and do well going forward. NPA are constantly coming down and bank balance sheet is strong enough for next leg of growth. Margins of Indian Banks are expected to improve in coming quarter as interest rate are expected to increase in coming quarter.
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