Macquarie Research :ICICI Bank will outperform

ICICI Bank: Meeting takeaways with corporate banking head

Event
􀂃 We met with Ms. Zarin Daruwala, head of wholesale banking at ICICI Bank.
Impact
􀂃 Loan growth currently not very broad based: Despite growth currently
being concentrated in a few segments such as infrastructure and steel, ICICI
is confident of achieving strong growth in the corporate banking segment.
􀂃 Seeing good traction in refinancing business: ICICI is seeing good traction
in the refinancing business and is taking away market share from nationalised
banks. Though interest rates in the refinancing business do not change, the
value proposition for customers comes in the form of better structuring of
the product.
􀂃 Project execution delays have increased: Management articulated that
there have been delays in project execution due to approvals not being
received for land, environmental clearances, fuel supply agreement not being
in place, etc. As a result, sanctions get converted to disbursements with a
reasonable lag as there are pre-disbursement conditions that need to be met.
􀂃 Irrational pricing in certain segments: ICICI Bank is seeing some irrational
pricing in certain segments such as roads, where interest rates being charged
by certain competitors are unreasonably low. It has also deliberately stayed
away from telecom lending (3G/BWA auctions) as it believes that the market
is mis-pricing the risk.
􀂃 Cautious on merchant power projects: ICICI finances largely power
projects where there is sufficient power off-take commitment in place. It also
applies a conservative Rs3-3.5/unit assumption for merchant power projects.
􀂃 No worries on asset quality: ICICI is very confident of maintaining its asset
quality in the corporate banking segment. Even the assets that have been
restructured have undergone sufficient deliberations instead of blanket
restructuring, which some of the nationalised banks have done. Recovery
rates through CDR (corporate debt restructuring) forum are usually very high.
Exposure to Subhiksha (Not listed), which is under CDR forum, has been fully
provided for.
Earnings and target price revision
􀂃 No change.
Price catalyst
􀂃 12-month price target: Rs1,100.00 based on a Sum of Parts methodology.
􀂃 Catalyst: Higher loan growth, potential EPS upgrades in 2Q/3Q/4Q.
Action and recommendation
􀂃 EPS upgrades could drive stock performance: We believe higher loan
growth and lower credit costs could eventually result in EPS upgrades for
ICICI over the next few quarters and could drive stock performance.