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Region: India
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Fundamental View
AS OF 23 May 2023ICICI Bank is one of the leading private banks in India and has a good diversified business model, with well regarded life and general insurance subsidiaries.
Under its previous CEO, the bank suffered setbacks from sizeable bad debt problems in FY17/18 but the situation has since stabilised following a leadership change and the bank has done well ever since.
The bank’s Baa3(sta)/BBB-(sta)/ BB+(sta) ratings make it a cross-over credit but we assess fallen angel risk to be low. ICICI Bank performed very well in FY22 and Moody’s upgraded its standalone rating to baa3 in June 2022. It has continued the good performance in FY23.
Business Description
AS OF 23 May 2023- The original Industrial Credit and Investment Corporation of India (ICICI) was established in 1955 by the World Bank, the Government of India and representatives of Indian industry as a financial institution to provide Indian businesses with medium and long-term project financing.
- In 1994, ICICI established a commercial banking subsidiary, ICICI Bank as India's financial sector opened up, and in 2002 ICICI merged with ICICI Bank, keeping the latter's name.
- Retail now accounts for 54% of its loan book, corporates are at 23%, while rural, business banking and SMEs are at 8%, 7% and 5% respectively, and overseas (which is being de-emphasised) consists of just 3% at FY23.
- The bank has well regarded life insurance (ICICI Prudential) and general insurance (ICICI Lombard) businesses.
Risk & Catalysts
AS OF 23 May 2023Despite ICICI’s relatively smaller SME book (~4.8% of total loans), we are cautious about the bank’s rapid loan growth in this sector, as well as that in business banking and unsecured retail loans given the sharp rise in interest rates, but India’s growth momentum looks comfortable for FY24.
ICICI Bank has a strong franchise and its profitability has caught up with that of HDFC Bank in recent quarters thanks to a very strong NIM momentum as well as loan growth. From an asset quality perspective it is still behind HDFC Bank, but the gap has been narrowing.
Leadership and governance issues under the previous CEO Ms. Chanda Kochhar have been dealt with well, since her replacement in Oct-18.
Key Metrics
AS OF 23 May 2023| INR bn | FY19 | FY20 | FY21 | FY22 | FY23 |
|---|---|---|---|---|---|
| Net Interest Margin | 3.42% | 3.73% | 3.69% | 3.96% | 4.48% |
| ROA | 0.36% | 0.77% | 1.39% | 1.77% | 2.13% |
| ROE | 3.2% | 7.1% | 12.3% | 14.7% | 17.2% |
| Equity/Assets | 11.2% | 10.6% | 12.0% | 12.1% | 12.6% |
| CET1 Ratio | 13.4% | 13.2% | 16.7% | 17.3% | 16.9% |
| NPA Ratio | 6.70% | 5.53% | 4.96% | 3.60% | 2.81% |
| Provisions/Loans | 3.02% | 1.95% | 2.05% | 0.97% | 0.65% |
| PPP ROA | 2.54% | 2.72% | 3.13% | 2.97% | 3.28% |
CreditSights View
AS OF 25 Apr 2023ICICI Bank is a preferred name among the Indian FIs we cover. We like the bank’s robust capital and loan loss buffers, high margins and strong profitability. Under its previous CEO, the bank suffered setbacks from sizeable bad debt problems in FY17/18 but the situation has since stabilised following a leadership change. The bank has emerged stronger from a capital, asset quality and earnings perspective, as it de-risked its book, and took pro-active actions to protect its capital by raising equity and selling small stakes in its well-regarded insurance subsidiaries to raise funds and set aside more general provisions. We are slightly cautious about its brisk expansion in riskier segments of late. We have a M/P reco. ICICI last issued a $ bond in 2017.
Recommendation Reviewed: April 25, 2023
Recommendation Changed: December 07, 2020
Who We Recommend
Bank Rakyat Indonesia
Mitsubishi UFJ Financial Group
State Bank of India
How may we help you?
Search topics about wealth insights and investments.Reliance Industries
- Sector: Manufacturing
- Sub Sector: Diversified Conglomerates
- Country: India
- Region: India
- Bond: RILIN 4.125 25
- Indicative Yield-to-Maturity (YTM): 5.531% (Indicative as of March 2)
- Credit Rating (Moody’s/Standard & Poor’s/Fitch): Baa2 / BBB+ / -M/P
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Fundamental View
AS OF 09 May 2023Reliance Industries (RIL) is positioned as India’s largest company by revenues, profits and exports. It enjoys a large, diversified scale of operations and dominates various key sectors (refining, petrochemicals, retail and telecom), which allow for earnings resilience.
RIL also plans to ramp up its presence in the renewable energy space, which could provide the next leg of growth and improve its ESG perception.
RIL incurs significant capex, particularly from heavy investments in 5G telecom and the renewables space (~INR 750 bn over the next 3 years). This has weighed on its free cash flow generation, though we acknowledge RIL’s historically prudent financial management and robust credit metrics that provide ample elbowroom for some credit profile deterioration.
Business Description
AS OF 09 May 2023- RIL is an Indian diversified conglomerate engaged in oil & gas refining, marketing, petrochemicals, organized retail, telecom and digital services, amongst others. It is the largest company in India by revenue, profits, exports and market capitalization (INR 14 tn).
- It is the second largest refiner in India and produces petroleum products such as petrol, high-speed diesel (HSD), aviation turbine fuel (ATF), LPG and lubricants.
- It is the largest petrochemicals producer in India, boasting production of ~38 mn tons in FY20. Through its integrated Jamnagar refinery complex, it produces Polymers/Plastics, Elastomers (synthetic rubber) and Polyester products.
- It is the largest retailer in India in terms of revenue. It operates 16.6k stores (as of September 2022) to sell products ranging from consumer electronics, fashion and lifestyle, grocery, petrol retail and telecom and digital services. It launched its online retail channel, 'JioMart', in December 2019.
- Reliance Jio is the largest mobile telecom operator by subscriber base (426 mn as of March 2021) in India and boasts the widest 4G wireless network in the country.
- In 2021, RIL announced investments to the tune of INR 750 bn/ $10 bn (for next 3 years) to build a renewable energy ecosystem which will include 4 giga factories. Set to be located in Gujarat, the factories will produce solar modules, hydrogen, fuel cells and battery grid to store electricity. Long-term goals also include building 100 GW of PV solar plants by 2030.
Risk & Catalysts
AS OF 09 May 2023RIL’s O2C (oil-to chemicals) business margins have been under pressure owing to the squeeze in key downstream chemical product margins (i.e. an absolute decline in product prices vs. feedstock prices), which impacted polymer and aromatics margins.
RIL incurs significant capex, particularly from heavy investments in 5G telecom and the renewables space (~INR 750 bn over the next 3 years). This has weighed on its free cash flow generation, though we acknowledge RIL’s historically prudent financial management and robust credit metrics that provide ample elbowroom for some credit profile deterioration.
RIL faces key-person risk; 65-year old Chairman Mukesh Ambani has begun to hand over the reins of RIL’s different business divisions to his children.
Key Metrics
AS OF 09 May 2023| INR bn | FY19 | FY20 | FY21 | FY22 | FY23 |
|---|---|---|---|---|---|
| Debt to Book Cap | 42.4% | 43.0% | 24.6% | 24.1% | 26.4% |
| Net Debt to Book Cap | 40.8% | 39.2% | 22.9% | 21.0% | 20.5% |
| Debt/Total Equity | 73.6% | 75.5% | 32.5% | 31.7% | 35.9% |
| Debt/Total Assets | 29.0% | 29.9% | 19.7% | 18.8% | 19.6% |
| Gross Leverage | 3.4x | 3.9x | 3.2x | 2.6x | 2.3x |
| Net Leverage | 3.2x | 3.5x | 3.0x | 2.2x | 1.8x |
| Interest Coverage | 3.3x | 3.2x | 3.1x | 5.7x | 7.3x |
| EBITDA Margin | 14.8% | 14.7% | 16.6% | 15.3% | 16.0% |
CreditSights View
AS OF 21 Jun 2023We have a Market perform recommendation on RIL. We think RIL’s bonds trade fairly to similarly rated Indian peers Bharti Airtel and BPCL. We like RIL’s large, diversified scale of operations and dominant market shares in key sectors (refining, petrochemicals, retail and telecom) that allow for earnings resilience. RIL also plans to ramp up its presence in the renewable energy space, which could provide the next leg of growth and improve its ESG perception. While we remain aware of RIL’s elevated capex needs could persist over the next 2-3 years, we think the impact is mitigated by RIL’s historically prudent financial management and healthy credit metrics that provide ample elbowroom for some credit profile deterioration.   Â
Recommendation Reviewed: June 21, 2023
Recommendation Changed: June 30, 2021
Who We Recommend
Bank Rakyat Indonesia
Mitsubishi UFJ Financial Group
State Bank of India
How may we help you?
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Fundamental View
AS OF 10 Jan 2023- The Export-Import Bank of India (EXIMBK) was founded in 1982. Its credit standing is built upon the key role it plays in the promotion of India’s cross border trade and investment development as India’s official export credit agency.
- EXIMBK is 100% owned by the Government of India. Given its crucial policy role, close governmental links and quasi-sovereign status, we view it as inconceivable that the Indian government would fail to provide EXIMBK with support in a timely manner, if needed.
- EXIMBK’s credit ratings are thus in line with the Indian sovereign, at Baa3(stb)/BBB-(stb)/BBB-(stb).
Business Description
AS OF 10 Jan 2023- EXIMBK presently serves as a growth engine for the internationalization efforts of Indian businesses, facilitating the import of technology and export product development, export production, export marketing, pre- and post-shipment, as well as overseas investment.
- As at 1H23, EXIMBK's loan portfolio is principally made up of export finance (80%) and term loans to exporters (13%), with remaining split among the financing of overseas investment, import finance, and export facilitation. 66% come under the policy business while the remaining are to the commercial business.
- By geography, the bank has a primary exposure of 45% to Africa, 45% to South Asia, 6% to rest of Asia, and 4% to the Americas and Europe.
Risk & Catalysts
AS OF 10 Jan 2023- As a quasi-sovereign issuer with backstops from the Government of India and the Reserve Bank of India (RBI), EXIMBK is rated in line with the Indian government at Baa3(stb)/BBB-(stb)/BBB-(stb). Any downgrades in India’s sovereign rating will have a negative impact on its credit ratings.
- EXIMBK’s policy role may require it to, at times, take on exposures that could lead to financial losses. This has led to poor asset quality and high impairment charges similar to the public sector commercial banks during the years leading up to the pandemic.
- Capital standing, however, is robust thanks to capital infusions from the Government of India which have been stepped up in recent years – INR 50 bn was injected in FY19, followed by infusions of INR 15 bn and INR 13 bn in FY20 and FY21 respectively. The bank continued to receive INR 7.5 bn in FY22 despite capital levels remaining strong during the year, and INR 15 bn from the FY23 budget has been allocated for EXIMBK.
Key Metrics
AS OF 10 Jan 2023| INR mn | 1H23 | FY22 | FY21 | FY20 | FY19 |
|---|---|---|---|---|---|
| Net Interest Margin (Annual) | 2.08% | 2.19% | 1.84% | 1.54% | 1.56% |
| ROAA | 1.19% | 0.54% | 0.19% | 0.10% | 0.07% |
| ROAE | 8.69% | 3.97% | 1.49% | 0.80% | 0.67% |
| Equity/Assets | 13.30% | 14.12% | 13.23% | 12.46% | 12.81% |
| Tier 1 Capital Ratio | 26.3% | 28.6% | 24.0% | 18.7% | 17.7% |
| Gross NPA Ratio | 6.14% | 3.56% | 6.69% | 8.75% | 11.34% |
| Provisions/Loans | 0.72% | 0.90% | 2.46% | 1.87% | 1.90% |
| Pre-Impairment Operating Profit / Average Assets | 2.21% | 2.31% | 2.13% | 1.66% | 1.74% |
CreditSights View
AS OF 10 Jan 2023Exim Bank of India is the country’s key policy bank with full government support. It provides financial assistance to exporters and importers with a view to promote trade in India. It is 100% owned by the Government of India (GoI) and is a proxy to the India sovereign in international debt markets (quasi-sovereign status). The bank cannot be liquidated without the government’s approval and has a track record of government capital infusions. The bank’s asset quality is back on track after some wobbles in previous years. Capital levels are strong. We maintain a Market perform recommendation on the bank.
Recommendation Reviewed: January 10, 2023
Recommendation Changed: January 04, 2021
Who We Recommend
Bank Rakyat Indonesia
Mitsubishi UFJ Financial Group
State Bank of India