ICICI Bank?s Q4FY11 earnings of R14.5 bn (up +44% YoY) were in line with our estimates, but driven by a better-than-expected rebound in top line (up +23% YoY), as margins expanded (+10 bps YoY and QoQ) to 2.7% due to re-pricing of domestic loans.

Loan growth was strong at +19.4% YoY (5% QoQ) led by corporate and overseas borrowing. Provisions were +16% lower than estimated, as asset quality held up and no new net NPL (non-performing loan) level accretion. CASA (current account, savings account) rose to +45.1% (from 44.2% in Q3 and 41.7% in Q4FY10) with the bank successfully leveraging its expanding distribution. Core fees were up 18% YoY, largely driven by corporate and international fees.

While we have tweaked (<3-4%) our FY12-13e earnings to factor in lower treasury gains, we believe the quality of earnings is likely to be much better. We estimate earnings growth of +35/25% in FY12-13 driven by +19-20% topline growth led by +20 bps margins expansion (FY11-13), as loans re-price and margins in overseas business increase. We also expect asset quality improvement sustaining through FY13. Core ROA (return on assets) estimated to rise to +1.6-1.7% in FY12-13 vs. 1.3% in FY11).

We reiterate our Buy and PO (price objective) of R1,400, as we expect (i) strong earnings trajectory of FY11 to continue in FY12/13 (+35/25%, resp.) and (ii) RoAs to rise to +1.6-1.7% in FY12-13 and RoEs (return of equity) to +15% in FY12 and further to +17.5% in FY13. The bank remains well placed on credit costs owing to its seasoned book.

Margins in domestic business rose 10 bps to 310 bps, but international loan book, which is +25% of its loan book and has seen strong growth at year-end (+22% YoY), has margins of 85 bps. ICICI Bank is earning a margin of +125-140 bps on its international book.

Further, loans grew by about 5% QoQ driven by corporate and retail lending. Core fees were up 18% YoY, largely driven by corporate and international fees, as growth in retail fees (credit cards and third party distribution) remained challenged. Treasury saw a R1.9 bn loss due to losses on security receipts and equity book, partly offset by gains on G-secs. Opex was up 21% YoY.

Asset quality was also very comfortable with no NPL accretion (at bank level). Gross NPLs flat QoQ and net NPLs at 0.9%, down 16% QoQ in absolute terms. Close to 65% of gross NPLs continue to be from retail. Provision coverage is at 76%. No new fresh restructuring in Q4, but upgrades/recoveries/closure, resulted in restructuring the book down to R20 bn vs. R25 bn in Q3.

The stock is trading at +2.0-2.1x FY12e ?core adj.? book (banking book) which is after deducting value of the entire NPL?s and investments in its non-bank subsidiaries. This is the closest comparison to private sector peers such as HDFC Bank that trades at 3.4x book with 20% RoE?s. While ICICI Bank may continue to trade at some discount as it needs to ?deliver? on some of the key variables, the results have helped reinforce our views that the bank can deliver on these variables.