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Near-term margin concerns, but good medium-term outlook
Liquidity likely to remain tight to Mar 2011 as government carries surplus balances into FY12 and then eases up post April.
System retail and corporate loan demand likely to be affected after another 100bps hike in lending rates.
ICICI Bank’s corporate and retail mix likely to shift towards corporates as corporate capex is picking up.
4,000 branch target in medium term (vs 2,500 currently); likely to maintain CASA at 40% even as current account
component declines slightly as corporates execute capex.
Margins to see near term pressure given liquidity situation but to rise medium term beyond 2.6%; international margins at
80bps, peak was 125bps.
System asset quality: NPL cycle has peaked for retail and corporate but not yet for SMEs. For ICBK, small and focused
SME exposure implies that NPLs have peaked.
Budget: may see some talk on new bank licences and consequently some irrational pricing in short term. Also, any efforts
to collect black money via a new scheme may bode well for bank deposits.
Valuation and risks
ICICI Bank is trading at 18x PE and 2x PB, which is below most private banks. We expect valuations to improve based on
a better growth and profitability outlook and higher return ratios. We expect FY11-13e EPS CAGR at 21% and expect
ROA to improve to 1.5% and ROE to 12%.
We use a weighted average combination of PE (75%), PB (15%), and economic profit model (EPM, 10%) to arrive at a
target of INR1,350. With a better growth and profitability trajectory, we expect the stock to rerate to 23x PE and 2.2x PB.
Downside risks: Slowdown in loan growth and spike in NPLs.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Near-term margin concerns, but good medium-term outlook
Liquidity likely to remain tight to Mar 2011 as government carries surplus balances into FY12 and then eases up post April.
System retail and corporate loan demand likely to be affected after another 100bps hike in lending rates.
ICICI Bank’s corporate and retail mix likely to shift towards corporates as corporate capex is picking up.
4,000 branch target in medium term (vs 2,500 currently); likely to maintain CASA at 40% even as current account
component declines slightly as corporates execute capex.
Margins to see near term pressure given liquidity situation but to rise medium term beyond 2.6%; international margins at
80bps, peak was 125bps.
System asset quality: NPL cycle has peaked for retail and corporate but not yet for SMEs. For ICBK, small and focused
SME exposure implies that NPLs have peaked.
Budget: may see some talk on new bank licences and consequently some irrational pricing in short term. Also, any efforts
to collect black money via a new scheme may bode well for bank deposits.
Valuation and risks
ICICI Bank is trading at 18x PE and 2x PB, which is below most private banks. We expect valuations to improve based on
a better growth and profitability outlook and higher return ratios. We expect FY11-13e EPS CAGR at 21% and expect
ROA to improve to 1.5% and ROE to 12%.
We use a weighted average combination of PE (75%), PB (15%), and economic profit model (EPM, 10%) to arrive at a
target of INR1,350. With a better growth and profitability trajectory, we expect the stock to rerate to 23x PE and 2.2x PB.
Downside risks: Slowdown in loan growth and spike in NPLs.
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