Recommendation From Banking Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year

[EasyDNNnews:PaidContentStart]

ICICI Bank

COUNT ON GOOD RETURNS WITH ICICI BANK

HERE IS WHY
Steady loan growth
Sharp improvement in asset quality
Expansion in NIMs

ICICI Bank is a major player in the retail banking sector in India. It is supported by a widespread distribution network and strong digital and technological capabilities. It operates 4,867 branches and 14,367 ATMs as of March 31, 2018. As such, it enjoys the largest network amongst private sector banks in India. It has invested in service automation through Natural Language Processing (NLP) and Artificial Intelligence (AI). Furthermore, it has partnered with various web-based providers for offering payment services using the UPI platform. Paytm and ICICI Bank co-jointly launched Paytm-ICICI bank postpaid, thereby offering customers access to instant credit. Overall, the bank boasts a healthy loan book size of Rs.5,12,400 crore as of FY18.

 

The company’s financial performance for the quarter ended December 2018 was healthy. The consolidated interest earned stood at Rs.16,280.40 crore in Q3FY19 as against Rs.13,665.35 crore in Q3FY18, posting a YoY growth of 19.13 per cent. The operating profit improved to Rs.6,146.42 crore in Q3FY19 in comparison to Rs.5,057.75 crore in Q3FY18, thereby rising 21.52 per cent. Its net interest margin (NIM) was reported at 3.40 per cent and fee income rose 16 per cent YoY.

The net profit dipped to Rs.1,604.91 crore in Q3FY19 from Rs.1,650.24 crore in Q3FY18, registering a drop of 2.74 per cent. The subsidiaries delivered a mixed performance and continue to add materially to the bank's overall growth.The company reported the lowest net NPA ratio of 2.58 per cent in Q3FY19 versus 3.65 per cent in Q2FY19. This is the lowest reported figure in the last 12 quarters. The ROA stood at 0.73 per cent in Q3FY19 as against 0.83 per cent in Q3FY18. The company maintained a steady pace of loan growth of 11.7 per cent YoY in Q3FY19. Driven by the momentum in retail, the domestic loan growth stood at 14 per cent YoY. Similarly, the company registered 22 per cent YoY growth in retail loans, which constituted 59 per cent of the loan portfolio. This included portfolio buyouts worth Rs.6,800 crore from the mortgage and auto loan space. The CASA deposits registered a growth of 15 per cent YoY, which resulted in a CASA ratio of 49.3 per cent. As a result, the company reported deposit growth of 17 per cent YoY. Meanwhile, the term deposits rose 20 per cent YoY. On a standalone basis, the capital adequacy ratio (CAR) stood at 17.15 per cent while the Tier-1 CAR was reported at 15.14 per cent.

The bank's slippages have moved to normalised levels and constitute 1.5 per cent of loans. The gross NPA ratio is at a 2-year low as it declined 80 bps QoQ to 7.75 per cent of loans. Meanwhile, the net NPA ratio is a 3-year low as it declined 107 bps QoQ to 2.6 per cent of loans. The company has a satisfactory provision coverage ratio of 70 per cent. Moving forward, the drop in credit costs will propel ROE normalisation. The credit upcycle bodes well for the future prospects of the bank. The management has maintained its ROE target of 15 per cent by June 2020. By virtue of improving asset quality, healthy credit growth and superior margins, we recommend our reader-investors to BUY this stock.