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ICICI Bank's Profit Shoots Up in Q4

Zacks Equity Research

ICICI Bank Limited’s (IBN) fiscal fourth-quarter 2012 (ended March 31, 2012) came in at INR19.02 billion ($374 million), reflecting an impressive 31% rise from INR14.52 billion ($285 million) recorded in the year-ago quarter.

For the fiscal year ended 2012, ICICI bank’s net income saw a 26% improvement from the prior year to INR64.65 billion ($1.3 billion).

Results in the quarter improved primarily due to higher net interest income, fee income and a fall in loan loss provisions. Further, asset quality continued to show signs of betterment and the capital ratios remained strong. However, higher operating expenses were the headwinds.

Behind the Headlines

ICICI Bank’s net interest income surged 24% year over year to INR31.05 billion ($610 million) from INR25.10 billion ($493 million) reported in the prior-year quarter.

Similarly, non-interest income also improved 36% year over year to INR22.28 billion ($438 million) from INR16.41 billion ($323 million).

Operating expenses for the quarter totaled INR21.60 billion ($426 million), up 20.7% year over year. The increase was primarily a result of the expansion in branch network.

ICICI Bank has the largest branch network among private sector banks in India. As of March 31, 2012, the bank had 2,752 branches and 9006 ATMs.

Provisions for the reported quarter declined 22.1% year over year to INR4.69 billion ($92 million).

Asset Quality

ICICI Bank witnessed continuous improvement in asset quality during the reported quarter. As of March 31, 2012, net nonperforming assets were INR18.94 billion ($372 million) shrinking 23% from INR24.59 billion ($483 million) in the prior-year quarter. Also, the bank's net nonperforming asset ratio stood at 0.62%, declining 32 basis points from the year-ago period.

Balance Sheet

As of March 31, 2012, ICICI Bank’s total advances were INR2537.3 billion ($49.9 billion), rising 17% from INR2163.7 billion ($42.5 billion) as of March 31, 2011.

In the quarter under review, ICICI Bank’s savings account deposits totaled INR760.46 billion ($14.9 billion), while current account deposits were INR349.73 billion ($6.9 billion). Moreover, as of March 31, 2012, the current and savings account (CASA) ratio was 43.5% compared with 43.6% in the year-ago quarter.

Capital Ratios

As per the Reserve Bank of India's Basel II norm, ICICI Bank's capital adequacy was 18.52% and Tier-1 capital adequacy was 12.68% as of March 31, 2012, well above the requirements of 9.0% and 6.0%, respectively.

Dividend Update

Concurrent with the earnings releases the company’s Board of Directors has recommended a dividend of INR16.50 per equity share (equivalent to $0.65 per ADS) for  fiscal year 2012. The declaration and payment of dividend is subject to mandatory approvals and record/book closure dates will be announced in due course.

Peer Performance

HDFC Bank Ltd. (HDB) reported fiscal fourth-quarter 2012 (ended March 31, 2012) net profit of INR14.53 billion ($0.28 billion), up 30.4% over the prior-year quarter. The quarterly results benefited mainly from strong growth in net revenue and a drop in provisions and contingencies (primarily comprising loan loss provisions). These were partially offset by higher operating expenses.

Our Take

We anticipate continued synergies from ICICI Bank’s increased dependence on domestic loans, almost stable funding base, improving asset mix and enhanced pricing power. Nevertheless, we are concerned about the company’s highly competitive operating environment and below-average credit quality.

ICICI Bank currently retains a Zacks #2 Rank, which translates into a short-term Buy rating.

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