Q1FY2008 Result Update

Performance Highlights

Net Interest Income up 16%:

ICICI Bank reported a healthy 16% growth in Net Interest Income (NII) to Rs1,714cr (Rs1,475cr). The growth in revenue was on the back of a 35% growth in Advances. Interest Income of the Bank jumped by around 50% yoy to Rs7,566cr (Rs5,038cr), while Interest Expenses increased 64% to Rs5,852cr (Rs3,563cr).

Strong growth in Non-Interest Income:

ICICI Bank’s non-interest income grew by around 70% to Rs1,715cr (Rs1,011cr), which included treasury gains of Rs195cr and sell down gains from sale of investments in its venture capital arm. The share of non-interest income in total income remained firm at 50%, where fee and commission income grew 35% yoy to Rs1,428cr (Rs1,055cr). The Bank also booked a loss on amortisation of premia for Rs235cr.

Net Profit grows 25% in line with expectation:

During Q1FY2008, ICICI Bank clocked a 25% growth in Net Profit to Rs775cr (Rs620cr) as against our expectation of Rs761cr. We believe that the treasury gain have turned out be a major savior for the Bank in terms of growth in Net Profit. However, we believe post deployment of the capital raised into the business, profitability of the Bank would improve.

NIMs under pressure:

ICICI Bank’s net interest margins (NIMs) were under pressure during Q1FY2008 on the back higher cost of funds. The Bank has high-cost bulk deposits in its books, which resulted in depressed margins. The Bank’s NIMs slipped 20bp yoy and 36bp qoq to 2.3%. The decline in margins was also on account of the lower share of low-cost deposits or CASA. The Bank’s share of CASA deposits for the period under review stood at 22%. We believe that with the addition of 200 branches to the existing 950 branches during the period will fructify and help improve margins towards Q4FY2008.

Outlook and Valuation

During Q1FY2008, the Bank managed to deliver a good performance despite cost pressures and deteriorating asset quality. The impact of higher cost of funds is expected to continue to depress NIMs during FY2008 however, there might be an improvement in margins towards Q4FY2008. On the flip side, it will be quite important to keep a watch on the Bank’s asset quality. We maintain a positive outlook on the stock over the longer term and maintain our full-year estimates. At the CMP of Rs970, the stock trades at 21.0x and 2.2x FY2009E EPS of Rs46 and Adjusted Book value of Rs 432, respectively. We maintain a Hold on the stock with a target Price of Rs 1100.