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ICICI Bank
All-around Improvement;
Maintain EW on Valuations
What's Changed
Price Target Rs960 to Rs1,100
F2012e/F2013e EPS Up 8% and 6% respectively
F2Q11 numbers were strong: The bank reported
earnings at Rs12.3 bn for the quarter (we were at
Rs11.9 bn, but a large part of the difference was interest
on IT refund of Rs840 mn, which is a one-off). However,
trends across the board were positive – underlying loan
book was up 2% QoQ; NII was up 4%; core PPoP rose
11%. The bank is finally delivering some revenue
growth.
Asset quality continued to improve: Net NPL
formation (ex BoR) was almost zero. Credit costs still
remain high (135 bps in F2Q11) as the bank catches up
on provisioning. However, this is likely to drop sharply
next year as new NPL formation slows further. We were
earlier building in a decline in credit costs to 90 bps in
F2012 – we have now taken it down to just about 55 bps
(no GP needed for 3-4 years), which is the key reason
for our earnings estimate revisions.
The stock could do well given signs of revenue
pickup… The bank’s balance sheet is very safe now
and with management looking at increasing the loan
book again, the stock could do well.
…but we still prefer other banks and maintain EW
on ICICI: While ICICI’s revenues turned around, it was
also a function of a strong environment for Indian banks.
In fact, as Exhibit 24 shows, almost all Indian banks (in
our coverage) did better. Our view is that if the macro
backdrop remains strong for Indian banks’ revenue
progression, better picks would be SOE banks and
asset aggregators (smaller private banks and NBFCs).
On our numbers, the stock is trading at 14.5x F2012 P/E
and 8.7x F2012 P/PPOP, which is not cheap, in our view.
Hence, we maintain EW.
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