ICICI Bank - Raise PO; Buy :: BofA ML

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ICICI Bank
Raise PO; Reiterate Buy
􀂄 Raise PO to Rs1400 on strong 2Q operational earnings
We raise our PO to Rs1400 post ICICI Bank’s strong 2QFY11 operating earnings
(net profit of Rs12.4bn; up 19% yoy). While headline earnings were in line with
our est., the quality of earnings was much better led by sustained improvement in
profitability and asset quality and we are very confident of growth (volume)
returning to ~20%, especially post BoR. Results reinforce our view of earnings
growing at +30% thru FY11/12; core ROE rising to ~16% and ROA to +1.6% by
FY12. We believe the bank, standalone, can trade up to +2.5-2.6x FY12 adj. BV.
SOTP of subs raised to Rs237/shr. on life biz. growth.

2Q11: Headline earnings in-line, but quality much better
2QFY11 earnings driven by a 8% topline growth and 40% reduction in provisions.
Topline supported by 10bps yoy margin expansion as bank’s CASA rose to 44%
with the bank successfully leveraging its expanding distribution. Further, loans
grew by 2% qoq (5.3% yoy with BoR), without factoring Bank of Rajasthan nos.
(merged wef August 13, 2010). Fees were up 15% qoq. Asset quality also much
better than expected with no NPL accretion (at I-Bank level). Net NPL’s at 1.6%.
ROA set to rise to +1.6% by FY12; core ROE to ~16%
We raise earnings estimates by +3/4% to capture better topline on higher loan
growth (+21%/20% post BOR), better margins and more unwinding of credit
costs. More importantly, the quality of earnings is much better supported by the
much better asset quality and sharply lower trading profits (cut by almost 60%).
Earnings to grow by +34/30% in FY11/12; Core ROE rising to ~ 16%.