ICICI Bank Q2 FY20 Result Update

Robust Operating Performance and Improved Asset Quality of ICICI Bank in Q2 FY20

Introduction

Private sector lender ICICI bank has reported a robust operating performance and improved asset quality in Q2 FY20 results. However, the bank’s net profit was hurt by a higher tax expense. Net profit fell by 28% YoY to Rs.655 Cr due to the impact of one-time additional charge of Rs.3,712 Cr due to re-measurement of accumulated deferred tax.

ICICI Bank Q2 FY20 Result Update

Q2 FY2019-20 Result Analysis – Robust Operating Performance

• Interest Earned
  • This is the primary source of income of any bank. It consists of following heads :
    1. Interest on advances and bills
    2. Interest on Investments
    3. Interest on balance with RBI and any other inter-bank funds
    4. Other type of interests
  • In Q2 FY20, Interest earned by the bank grown by 23% YoY to Rs.18,565 Cr from Rs.15,106 Cr in Q2 FY19. While QoQ growth was 3%.
• Net Interest Income (NII)
  • It is calculated as : Net Interest Income = Interest Earned – Interest Expended
  • Thus, Net Interest Income is the core income of the bank after deducting its interest expenses ie. interest on term deposits, savings accounts etc.
  • NII of the bank is increased 26% YoY to Rs.8,057 Cr in Q2 FY20 over Rs.6,418 Cr in Q2 FY19.
• Operating Profit
  • It is calculated as : Operating Profit = Operating Income – Operating Expenses
  • Operating Profit of ICICI bank is increased 31% YoY to Rs.6,874 Cr in Q2 FY20 over Rs.5,250 Cr in Q2 FY19. The QoQ growth in operating profit is also significant ie. 9%.
  • Such a robust growth in operating profit is mainly driven by lower cost-to-income ratio (C/I ratio). It means due to the higher deposits growth of the bank in Q2 FY20, the bank’s borrowings were lower.
  • Thus, it reduces the cost of borrowings of the bank backed by the availability of the liquidity with it for lending or for advances.
• Provisions
  • Higher Provision Coverage Ratio and lower slippage led to lower provisioning in Q2 FY20.
  • The provisions were reduced 37% YoY to Rs.2,507 Cr in Q2 FY20 from Rs.3,994 Cr in Q2 FY19 and Rs.3,496 Cr in June quarter.
• Profit Before Tax (PBT)
  • As a result of de-growth of 37% in the provisions made from the operating profit in September quarter, the bank’s PBT has jumped almost 250% YoY in Q2 FY20. The Profit before Tax rose to Rs.4,367 Cr in Q2 FY20 from Rs.1,250 Cr in Q2 FY19.
  • While the QoQ growth in PBT is seen to be 56% from Rs.2,793 Cr.
• Net Profit (PAT)
  • In spite of 250% rise in PBT, bank’s net profit fell by almost 28% YoY to Rs.655 Cr from Rs.909 Cr in last year same quarter.
  • Net profit was hurt by a higher tax expense. Transition to the new corporate tax rate lead to an accumulated DTA write-down impact of Rs.2,920 Cr resulting in an PAT of Rs.655 Cr lower by 28%
    YoY.
  • PAT without the DTA write down would have been Rs.3,575 Cr for the quarter.

Q2 FY2019-20 Balance sheet Summary

• Total Deposits of the bank grew by almost 25% YoY and 5% QoQ. While, CASA deposits grew by 15% YoY and 9% QoQ. When compared with total deposits growth, CASA deposits share is lower than that of term deposits.
• CASA ratio is deteriorated YoY from 50.8% to 46.7% in Q2 FY20. But, it is improving QoQ from 45.2%
• Advances have also reported at Rs.6.14 Lakh Cr with a steady growth of 13% YoY and 4% QoQ.
• Net Interest Margin (NIM) is improved to 3.64% from 3.33% last year. It is possible only because of the robust growth in the deposits in Q2 FY20 and the reduced borrowings resulting into lowering of the cost of funds raised. Thus, NIM is improved YoY as well as QoQ.
• Capital Adequacy Ratio (CAR) is deteriorated to 16.14% from 17.84% last year same quarter.

Improved Asset Quality

• The bank continued to show improvement in asset quality in September 2019 quarter.
• Bank’s Gross NPAs declined to 6.4% in Q2 FY20 from 8.5% in Q2 FY19 and 6.5% in Q1 FY20.
• On the other hand, Net NPAs have seen a decline to 1.6% in Q2 FY20 from 3.7% in Q2 FY19 and 1.8% in Q1 FY20.
• As far as sector specific exposure is concerned :
  1. NBFC + HFC exposure has reduced by 3% QoQ
  2. Telecom exposure is only to the top 2 players
  3. Builder exposure has increased by 11% QoQ
• The bank has one of the highest provision coverage ratio (PCR) among private banks. For Q2 FY20, PCR is improved to 75% from 57% a year ago and from 73% in June quarter.

ICICI Bank Valuation

• Transition to the new corporate tax rate lead to an accumulated DTA write-down impact is a one-time event.
• Bank’s robust operating profit is witnessing the retail business growth adding to the overall profitability of the bank. If such kind of growth in operating profits will continue with the reduced provisioning in coming quarters also, then the bank will achieve the net profit around Rs.13,000 Cr for FY2020-21.
• The dampening effect of NPAs are also reducing with the falling Gross as well as Net NPA numbers. So, it will offer a boost to the steady growth of net profit in coming quarters.

The current Valuation of the ICICI Bank = Current Market Cap of ICICI bank + Current Value of ICICI Bank’s Stake in its subsidiary companies.