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ICICI Bank (CMP: `1,231/ TP: `1,335/ Upside: 8%)
The Bank is well-positioned to gain CASA market share on the back of substantial
branch expansion from 955 in 3QFY2008 to 2,500+ in 2QFY2011 as well as
credit market share on the back of strong Capital Adequacy at 20.2% (Tier-I at
13.8%).
Net Interest Margins of the Bank are expected to improve on the back of increase
in CASA ratio to 44.0% in 2QFY2011 from 29% in FY2009.
On the back of an improving economic environment, NPA losses are expected to
start declining. The Bank has also done lower restructuring of loans than PSU
Banks (4.8% of Net Worth v/s 40%+ for most PSU Banks). As a result, we expect
NPA provisions /Assets to decline sharply to 0.5% by FY2012E (from 1.2% in
FY2010)
We expect the bank to deliver strong earnings CAGR of 29.7% over FY2010-12E
and a ROE of 15.6% by FY2012E vs. 9.7% in FY2010. The stock is trading at
valuations of 2.4x FY2012E P/ABV (including subsidiaries). Hence, we recommend
an Accumulate on the stock with a Target Price of `1,335 valuing the core bank at
2.9x FY2012E P/ABV and assigning a value of `254 for its subsidiaries.
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