ICICI Bank?s second quarter FY11 net profit grew 19% year-on-year to Rs 1,240 crore, versus our estimate of Rs 1,160 crore. Adjusted for the merger impact, net interest margin and profit after tax growth would be 3-4% higher than our estimates. Reported NII grew 11% QoQ to Rs 2,200 crore.
During the quarter, Bank of Rajasthan was merged with ICICI Bank and the reported results include the impact of the merger for a period of 49 days. While there was skepticism about quality of assets acquired from BoR, the merger accounting does not reflect any negative surprise. Adjustments were made in terms of provisions for employee benefits, move to 70% provision cover on NPAs (nonperforming assets) and deferred tax asset reversal in e-BoR books prior to merger.
At the end of FY10, BoR?s net worth stood at Rs 960 crore, on which bank made the provisions for second pension option, reversal of DTA (deferred tax assets) and increased coverage ratio to 70%, which led to a fall in net worth to Rs 360 crore. Further, to align with ICICI Bank?s pay scales on gratuity liability, the bank took a hit of Rs 270 crore, leading to an effective net worth of Rs 85 crore at the time of merger.
Loans were up 5.3% QoQ and 1.8% YoY to Rs 1.9 trillion (adjusted for the merger, growth was 1.8% QoQ, in line with the industry trend). Growth was driven by higher disbursals in the corporate segment. For the full year, the management is targeting 18-20% growth in domestic operations. While corporate loans would continue to be the key driver, lower deceleration in retail loans (decline of 9% YoY vs 21% in Q1FY11) would aid loan growth. In absolute terms, retail loans have shown a sequential increase after 10 quarters.
Deposits grew 11% QoQ to Rs 2.2 trillion (adjusted for the merger, growth was 4% QoQ). CASA (current and savings accounts) grew 34.5% YoY to Rs 981 bn (adjusted growth of 33.9% YoY). While SA deposits grew 28% YoY (12% QoQ), CA deposits grew 48% YoY (24% QoQ). CASA ratio went up to 44% in Q2FY11 vs 42.1% at the end of Q1FY11. On an average daily basis, CASA ratio stood at 39% for Q2FY11.
NII grew 11% QoQ to Rs 2,200 crore, driven by sequential growth in loan book and improvement in NIMs (net interest margins). Margins improved 10 basis points QoQ to 2.6%; domestic margins improved 20 bps QoQ to 3% while margins on global business remained stable at 0.8%. Relatively low domestic CD (credit-deposit) ratio of 68% provides room for margin improvement.
Fee income grew 14.6% YoY, driven by higher income from the corporate and international segments, which grew 20%+. Trading loss stood at Rs 140 crore vs a profit of Rs 100 crore a quarter ago and Rs 300 crore a year ago.
Reported gross NPAs increased 3% QoQ to Rs 10,200 crore (retail GNPAs of Rs 6,800 crore). During the quarter, net additions to gross NPAs were on account of merger with BoR.
ICICI Prudential Life APE (annual premium equivalent) improved 11% YoY to Rs 1,340 crore and NBAP (new business achieved profit) margin remained stable at 18.9%. It reported a statutory profit of Rs 20 crore; AUM (assets under management) grew 31% YoY to Rs 65,500 crore.
We have upgraded our earning estimates by 4% for FY11/12 to factor in BoR merger and lower credit cost. Adjusted for the Rs 258/share value of subsidiaries (based on FY12 estimates; post-20% holding company discount), the stock trades at 2.2x FY12 ABV (adjusted book value?adjusted for investment in subsidiaries) and 15.6x FY12e EPS (earnings per share). We expect ICICI Bank to report core RoE (return on equity) of about 14% by FY12, with tier-I capital strong at about 12%. Our FY12e-based SOTP (sum-of-the-parts) value is Rs 1,270 (rounded off), an upside of 9%.