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Investment Thesis
• Largest private sector bank in India –
implies significant scale.
• Management has been delivering on
key metrics – CASA, cost, credit and
capital.
• Decline in consumer NPLs and
improving macro will lead to
continued credit cost normalization in
F2012.
• Bank has started refocusing on
balance sheet. However, core
revenue growth will remain relatively
tepid as loan growth lags peers.
• Trades at 12.5x F2012e earnings and
1.7x F2012e BV (adjusted for value of
key subsidiaries).
Key Value Drivers
• Loan growth.
• Margin progression.
• Operating and credit costs.
• Insurance subsidiary valuation.
Potential Catalysts
• Strength of loan growth in F2012.
• Margin progression in F1H2012.
• Progress on improving liability
franchise.
• New NPL formation trends in F4Q11
and F2012.
• Potential regulatory developments
related to foreign investment in
insurance operations in India.
• Better-than-expected performance of
international loan book.
Key Risks
• Upside: Better-than-expected NIMs
and asset quality at the banking
business and higher-than-expected
market share or NBAP margins for the
life insurance business.
• Downside: Higher-than-expected
credit costs, lower-than-expected
loan growth.
Price Target Rs1,065 Sum of the parts; we assign an 70% probability to our base case, a
25% probability to our bull case, and a 5% probability to our bear case.
Bull
Case
Rs1,375
2.7x
F2013e
BVPS
Macro environment is stronger than expected driving faster
revenue growth Loan growth is stronger than base case estimate at
25% in F2012/13. Fee income growth picks up to 20%. Costs grow
slower than asset growth at around 20%.
Base
Case
Rs975
1.9x
F2013e
BVPS
Drop in new NPL formation allows management to refocus on
balance sheet growth; but NII growth will remain relatively tepid
as loan growth lags peers: Credit costs drop to 117 bps in F2011
and 60 bps in F2012 from 218 bps in F2010. Loan book records a 17%
CAGR in F2012-13 versus a decline of -17% in F2010 and growth of
20% in F2011. Reported NIMs compress by 15 bps to ~2.45% by
F4Q12.
Bear
Case
Rs755
1.5x
F2013e
BVPS
Slowdown in economic growth; asset quality concerns return.
System loan growth is lower than base case expectations and hence
ICICI bank loan book growth does not accelerate per expectations (at
less than 14%). Credit costs return to elevated levels seen in F1H2010
as new NPL formation in the consumer loan book increases again.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Investment Thesis
• Largest private sector bank in India –
implies significant scale.
• Management has been delivering on
key metrics – CASA, cost, credit and
capital.
• Decline in consumer NPLs and
improving macro will lead to
continued credit cost normalization in
F2012.
• Bank has started refocusing on
balance sheet. However, core
revenue growth will remain relatively
tepid as loan growth lags peers.
• Trades at 12.5x F2012e earnings and
1.7x F2012e BV (adjusted for value of
key subsidiaries).
Key Value Drivers
• Loan growth.
• Margin progression.
• Operating and credit costs.
• Insurance subsidiary valuation.
Potential Catalysts
• Strength of loan growth in F2012.
• Margin progression in F1H2012.
• Progress on improving liability
franchise.
• New NPL formation trends in F4Q11
and F2012.
• Potential regulatory developments
related to foreign investment in
insurance operations in India.
• Better-than-expected performance of
international loan book.
Key Risks
• Upside: Better-than-expected NIMs
and asset quality at the banking
business and higher-than-expected
market share or NBAP margins for the
life insurance business.
• Downside: Higher-than-expected
credit costs, lower-than-expected
loan growth.
Price Target Rs1,065 Sum of the parts; we assign an 70% probability to our base case, a
25% probability to our bull case, and a 5% probability to our bear case.
Bull
Case
Rs1,375
2.7x
F2013e
BVPS
Macro environment is stronger than expected driving faster
revenue growth Loan growth is stronger than base case estimate at
25% in F2012/13. Fee income growth picks up to 20%. Costs grow
slower than asset growth at around 20%.
Base
Case
Rs975
1.9x
F2013e
BVPS
Drop in new NPL formation allows management to refocus on
balance sheet growth; but NII growth will remain relatively tepid
as loan growth lags peers: Credit costs drop to 117 bps in F2011
and 60 bps in F2012 from 218 bps in F2010. Loan book records a 17%
CAGR in F2012-13 versus a decline of -17% in F2010 and growth of
20% in F2011. Reported NIMs compress by 15 bps to ~2.45% by
F4Q12.
Bear
Case
Rs755
1.5x
F2013e
BVPS
Slowdown in economic growth; asset quality concerns return.
System loan growth is lower than base case expectations and hence
ICICI bank loan book growth does not accelerate per expectations (at
less than 14%). Credit costs return to elevated levels seen in F1H2010
as new NPL formation in the consumer loan book increases again.
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