ICICI Bank – Earnings In-Line

ICICI Bank Net profit of Rs14.4bn (up 30% y/y, 16% q/q) beat expectations due to lower loan loss provisions (LLP). NII of Rs23.1bn (up 12%y/y, 5%q/q) was driven by flat sequential NIM at 2.6% and 15% y/y loan growth. Corporate loans supported loans growth while retail book stayed flat.

Core fee income grew at 14%y/y, 2%q/q. Credit cost declined 54% y/y, 28% q/q to 1%. We believe margins would be under pressure and likely get capped at 2.6% in the near term due to rising cost of funds.

Loans grew by 6% qoq (14% YTD), lower than industry trend of 10%, to `2.07 tn as of December 2010. Yoy growth is higher at 15% on a low base and impact of BoR in current numbers. Incremental growth was mainly driven by corporate segment on the domestic front, which grew by 49% yoy and 14% qoq. Retail loans just grew by 1% qoq and declined 2% yoy – mortgages grew by 7% yoy. Retail disbursements were `71 bn, which is lower than `78 bn in 2Q.

More importantly, the quality of earnings is likely to be much better supported by the much topline driven by margins rising (re-pricing of loans with a lag as ICICI Bk has re-set clauses at set dates vs. most govt. banks, which where a change in lending rate triggers change in borrowing cost for the borrower) and asset quality improvement sustaining.

ICICI Bank is expected to report an EPS between Rs 56 to Rs 60 for FY 2012 according to various research estimates. The stock price target ranges between Rs 1200 to Rs 1400.