MOSL: ICICI BANK (Buy)-Capex recovery still sometime away-retail growth holding well

​ICICI BANK: Capex recovery still sometime away; retail growth holding well

(ICICIBC IN, Mkt Cap USD31.8b, CMP INR315, TP INR370, 17% Upside, Buy)

We met ICICI Bank recently. Following are our key takeaways from the meeting:

Capex demand remains muted; maintains 18-20% growth guidance for retail segment: Credit demand from corporates remains muted and the management is not seeing any signs of capex revival. Resolution of NCLT referred cases would give more clarity on capex pickup and asset quality outlook. ICICIBC is aiming for ~15% growth in domestic corporate portfolio (excluding restructured loans and loans to companies included in the drilldown list) even as the overall corporate loan growth remains a muted 4% YoY. Retail loan growth, however, is holding up well and the bank maintained its retail loan growth guidance of 18-20% for FY18, led by continued traction across product lines. Unsecured retail loans have increased to 9.6% of total retail loans and largely pertain to the bank’s existing customers.

Margins likely to moderate in 2HFY18: ICICIBC has reported 12bp YoY expansion in margins over 1HFY18 to 3.27%, aided by interest on income tax refund, strong CASA growth and continued traction in retail loans. However, the absence of such one-off gains, accelerated repricing of advances portfolio and migration of base rate loans to MCLR will weigh heavy on margins in 2HFY18. On CASA, the bank is reaching out to government clients to provide customized solutions, dashboard and MIS, which will provide it a sticky business opportunity.

Monetization of subsidiaries on track; pace of decline in overseas loan portfolio to moderate: ICICIBC is open to evaluating opportunities to unlock value in its subsidiaries. It has recently filed DRHP towards the public issue of its securities business. ICICIBC currently holds 54.9%/55.9% stake in its life/general insurance subsidiaries and will eventually look to retain majority stake in these subsidiaries. It is not looking to reduce stake in AMC business, where it holds 51%. There are no plans to sell stake in housing finance subsidiary as well. On overseas business, ICICIBC indicated that the pace of decline in loan book will moderate (22% YoY decline currently) and there exists some scope of capital repatriation from its Canada subsidiary.