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ICICI Bank
Quality led growth ahead
Having met with management today at our 15th Annual India Investor
Conference in New Delhi, these are some of our takeaways...
„ ICICI Bank expects loan growth of 18% in FY11 followed by 20% in FY12 (inline with sector average). Loan growth is primarily driven by higher working
capital loans. Less likely to be impacted by the recent rate hikes, though
persistent rate hikes could dampen that. The slowdown is most visible in
project finance. Capex related lending is yet to pick up.
„ As per ICICI Bank, margins are likely to be very cyclical; declining over the
next few quarters as all deposits re-price (trough in Jun'11). However,
margins should begin to trend up thereafter as the full benefits of the loan repricing (spread across the year) takes effect. On balance, margins should
trend higher in FY12.
„ ICICI Bank reiterated its comfort on asset quality. It also highlighted that
asset quality improvement is likely to sustain in the coming quarters.
Moreover, this will continue to result in much lower credit costs. The bank
believes normalized credit costs should be 80-100bps through a cycle; but
the probability of them being lower near term is very high. In our view ICICI
Bank has the most seasoned loan book and offers good comfort on asset
quality.
„ Fee revenues should potentially see a much stronger rebound in FY12
(leaving room for upside) as loan growth picks up and we see a pick up in
equity linked products (mutual funds and insurance). Fee revenues should
also benefit from the banks’ expanding branch distribution.
Price objective basis & risk
ICICI Bank (ICIJF / IBN)
We set our PO at Rs1400. ICICI Bank appears amongst the better positioned
banks to both capitalize on growth and best positoned in terms of asset quality.
We believe the bank trading at 2.2-2.3x FY12 (bk. biz.) can trade up to +2.5-2.6x,
which is a premium to theoritical multiples, led by earnings trajectory of +30%
(topline) and a sharp unwinding of credit costs, especially where most banks
asset quality continues to see-saw. Add to this subs (non-bank) value of
Rs237/shr, we get out PO of Rs1400. Risks are sharp rise in interest rates could
hurt margins (40% of total deosits wholesale for ICICI Bank) and slowdown in
macro growth could lead to lower volume growth and earnings trajectory for
FY12.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ICICI Bank
Quality led growth ahead
Having met with management today at our 15th Annual India Investor
Conference in New Delhi, these are some of our takeaways...
„ ICICI Bank expects loan growth of 18% in FY11 followed by 20% in FY12 (inline with sector average). Loan growth is primarily driven by higher working
capital loans. Less likely to be impacted by the recent rate hikes, though
persistent rate hikes could dampen that. The slowdown is most visible in
project finance. Capex related lending is yet to pick up.
„ As per ICICI Bank, margins are likely to be very cyclical; declining over the
next few quarters as all deposits re-price (trough in Jun'11). However,
margins should begin to trend up thereafter as the full benefits of the loan repricing (spread across the year) takes effect. On balance, margins should
trend higher in FY12.
„ ICICI Bank reiterated its comfort on asset quality. It also highlighted that
asset quality improvement is likely to sustain in the coming quarters.
Moreover, this will continue to result in much lower credit costs. The bank
believes normalized credit costs should be 80-100bps through a cycle; but
the probability of them being lower near term is very high. In our view ICICI
Bank has the most seasoned loan book and offers good comfort on asset
quality.
„ Fee revenues should potentially see a much stronger rebound in FY12
(leaving room for upside) as loan growth picks up and we see a pick up in
equity linked products (mutual funds and insurance). Fee revenues should
also benefit from the banks’ expanding branch distribution.
Price objective basis & risk
ICICI Bank (ICIJF / IBN)
We set our PO at Rs1400. ICICI Bank appears amongst the better positioned
banks to both capitalize on growth and best positoned in terms of asset quality.
We believe the bank trading at 2.2-2.3x FY12 (bk. biz.) can trade up to +2.5-2.6x,
which is a premium to theoritical multiples, led by earnings trajectory of +30%
(topline) and a sharp unwinding of credit costs, especially where most banks
asset quality continues to see-saw. Add to this subs (non-bank) value of
Rs237/shr, we get out PO of Rs1400. Risks are sharp rise in interest rates could
hurt margins (40% of total deosits wholesale for ICICI Bank) and slowdown in
macro growth could lead to lower volume growth and earnings trajectory for
FY12.
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