A classic value is emerging in India`s largest private bank by assets underpinned by their retail oriented strategy henceforth. Have done the analysis of their latest annual reports, balance sheet and loan book quality and it clearly shows buoyancy in growth ahead. Market is not even considering their inherent assets in subsidiaries and the huge future growth potential of these entities.

Asset and Deposits Mix, Capital Adequacy:

Total consolidated Assets of ICICI bank stands at 11 Trillion Rupees. Total standalone Loan Book – 5, 16, 289 Cr grew by 11% in Jun 2018. 57.5% loans are in Retail segment, 4.6% in SME and 25.4% in corporate segment. Domestic book is growing at 15% which is good considering the Bank`s focus is shifting towards Retail and SME sectors from future growth standpoint. Home Loans forms 50% of Retail book, Vehicle loans forms 16% of retail share and Rural loans around 14.4% of retail book. The good part is that unsecured personal loan only forms 7.5% of retail loan book.

CASA deposits increased by 16% 2, 76, 294 Cr as on June, 2018. Cost of Deposits was 4.81 at June 2018. Bank is well capitalized with Tier 1 adequacy at 15.84%.

Migration to strong retail Franchise underpinned by Tech Innovation and digital platforms:

ICICI Bank has tilted heavily towards Retail franchise with 58% of total loans tilting towards retail loans. It has higher CASA, better retail franchise share of assets more than even HDFC bank has today. Their retail franchise is supported by wide network of 4800+ branches and 14300+ ATMs and retail business are also underpinned by strong digital and technological platforms like API enabled E-KYC and Natural Language Processing (NLP)/AI enabled service automation and support Bots. Paytm and ICICI Bank has partnered to launch Paytm-ICICIBank Postpaid offering access to instant credit to customers. The Bank uses big data based algorithms for real-time credit assessment of customers, including credit bureau checks, and based on the credit score of the customer the Bank offers interest-free credit for up to 45 days. As a start, this is being offered to customers of the Bank using the Paytm app and would eventually be extended to non-ICICI Bank customers. The retail loan portfolio (including business banking and rural banking) grew by 20.6% and loans stood at 2, 90,060 Cr at March 31, 2018


Non-Performing Assets (NPAs) and Provisioning:

The corporate lending and resolution landscape is going through a paradigm shift underpinned by implementation of Bankruptcy code and Restructuring classifications by RBI. Gross NPAs stood as of June 2018 at 53465 Cr. Net NPAs after cumulative provisioning stood at 24,170 Cr accounting for 4.4% of total Assets. Provisional coverage ratio as on June 2018 stood at 66% coverage of GNPA including Technical write off.

As on June 2018, the assets pertaining to BB & below forms just 8% of the loan book accounting to 24,629 Cr. Out of this, the drilldown list which filters out below investment grade companies in corporate and SME structures excluding loans that are already classified NPA/ Restructured. This adds up to 4400 Cr. This includes RBI suggested Strategic Debt Restructuring (Converting loans to equities) in operating companies.

Muted Net Interest and Fee Income:

Net Interest Income in FY18 was 23,026 Cr growing by just 6% over FY17 owing to the slowing down in Corporate lending although retail lending grew YoY by 21% in same period.

The catchy item in the Income details is the Fee income in FY18 at 10,341 Cr which is almost 50% of the Net Interest Income.It grew YoY by 9.5%. Retail fee income constitutes 73% of total fee income.

Strong Operating metrics:

Yield on advances was 8.71 at June 2018. Domestic Net Interest Margin is impressive at 3.2% and increase in cost of funds will not impact CASA franchises significantly considering their higher contribution attributing to 51.7%.. Also Operating profits are growing at 16.5% which is a positive. Cost to Income for the Bank in FY18 was 38.8 which is impressive although this is influenced by stake sale in subsidiaries. Operating profits for Q1 FY19 was 5800 Cr

Subsidiaries Earnings and Growth in their valuations:

ICICI Prudential Life Insurance Company (ICICI Life): ICICI bank owns 55% stake valuing its holding at 30,000 Cr

Total premium in 2018 – 27,069 Cr

Total AUM of Life Insurance is 1, 39,532 Cr

Price to Book 7 times trailing twelve months which is a lot expensive.

ICICI Lombard General Insurance Company (ICICI General): ICICI bank owns 56% valuing at 20,000 Cr

The company’s Gross Domestic Premium Income (GDPI) rose to ` 123.57 billion, with a growth of 15.2% over fiscal 2017. ICICI General’s profit after tax grew by 22.8% to ` 8.62 billion in fiscal 2018 from ` 7.02 billion in fiscal 2017. The company’s combined ratio improved to 100.2% in fiscal 2018 from 103.9% in fiscal 2017. The return on equity increased to 20.8% in fiscal 2018 as against 20.3% in fiscal 2017

Price to Book 8 times trailing twelve months which is lot expensive.

ICICI Prudential Asset Management Company (ICICI Prudential AMC):

Has an AUM of 3, 05,739 Cr in 2018. PAT of 626 Cr in 2018. Growing at 30%. 13% market share in domestic Mutual Funds. Not listed yet. Assuming a premium of 100% considering the 30% growth and op leverage with substantial market expansion in Assets, can be valued at 4-5% of AUM. So valuation is around 15,000 Cr and ICICI bank holds 100%.

ICICI Securities: Bank holds 74% stake valued at around 16,000 Cr based on current MCap

Not separately valuing ICICI Bank UK and CAD.

ICICI Home Loan: This can scale to large company itself in years to come and can unlock value like other subsidiaries that outgrew from Parent ICICI bank.

Total Assets in Home loans – 1, 54,455 Cr as on June 2018 growing at 16.5%. Home loans forms 50% of the Retail assets.

All subsidiaries including 5 year Dividend outlay can be valued in total 85,000 – 90,000 Cr as of June 2018. The valuation can ICICI Bank holdings in its subsidiaries which is close to its Book value today can atleast double in next 5 years to 1,90,000 Cr.

Prospects of investment in ICICI Bank over next 3 years:

Stage is all set for ICICI bank to leverage really on the focused big retail growth as well as increasing credit uptick in corporate lending driven by strong consumption and Infra investments. Strong retail franchise will help maintain the high returns on assets. Plus the provisioning coverage at 67% and all NPAs being recognized is a big plus from bank`s future profitability standpoint. The substantial reduction in Provisions and increase in revenue can aid the ROE increase. The potential growth in subsidiaries can unlock huge value in years ahead considering Insurance, Asset Management, Home loans and Securities are all sunrise industries in India.

Big risks or questions include whether an impressive high caliber leadership kicks in and course correct their path. And also the external global risks creating the macro headwinds which can hinder near term upside