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ICICI Bank
Improving return ratios, valuations still reasonable. ICICI is at a ~5% PE
discount to peers like AXSB, which we think is unwarranted. Return ratios and
growth are improving, the quality of the book has structurally changed and its getting
a footing back in the market. We see falling credit costs as a continuing catalyst for
the stock. We revise down our earnings by 2-4% as we marginally cut our loan
growth estimates and we revise our PT to Rs1225/share (Rs1300/share earlier) in
spite of 6mnts rollover to Mar-12 as we assign lower marginally lower multiple 1.8x
now v/s 1.9x earlier.
Credit costs could surprise. Our credit cost assumption of 85bps builds in an
"undershoot" from the management's guidance of ~100bp as the long-term
sustainable credit costs. This is driven by its lack of growth in recent times, as well
as the sweet spot in retail credit. Despite its ~9% exposure in Infrastructure, we think
its less affected by the stresses on IPPs, given its portfolios aged a little more.
Margin pressures short term. We see a 10-15 bps margin pressure of ICICI over
the next two quarters, but should rebound after that, driven by retail asset repricing
and larger share of domestic assets. Our y/y margins expectations are conservatively
flat.
Loan growth returning. After a sustained period of consolidation, we factor in 20%
loan growth for FY12, which should be a welcome change for the bank. The growth
will be balanced – the international book growing at ~10%, while the domestic loan
growth is expected at ~23%. We do not expect any significant change in the loan
mix.
Key risk – international book. Our assumptions are that the international book
grows at ~10% with improved margins - this could be at risk if there is monetary
tightening in western economies (the attraction of dollar loans for Indian corporates
would dwindle). We do not see ICICI’s domestic business being able to take up the
slack, given the risk-averse approach of the management.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ICICI Bank
Improving return ratios, valuations still reasonable. ICICI is at a ~5% PE
discount to peers like AXSB, which we think is unwarranted. Return ratios and
growth are improving, the quality of the book has structurally changed and its getting
a footing back in the market. We see falling credit costs as a continuing catalyst for
the stock. We revise down our earnings by 2-4% as we marginally cut our loan
growth estimates and we revise our PT to Rs1225/share (Rs1300/share earlier) in
spite of 6mnts rollover to Mar-12 as we assign lower marginally lower multiple 1.8x
now v/s 1.9x earlier.
Credit costs could surprise. Our credit cost assumption of 85bps builds in an
"undershoot" from the management's guidance of ~100bp as the long-term
sustainable credit costs. This is driven by its lack of growth in recent times, as well
as the sweet spot in retail credit. Despite its ~9% exposure in Infrastructure, we think
its less affected by the stresses on IPPs, given its portfolios aged a little more.
Margin pressures short term. We see a 10-15 bps margin pressure of ICICI over
the next two quarters, but should rebound after that, driven by retail asset repricing
and larger share of domestic assets. Our y/y margins expectations are conservatively
flat.
Loan growth returning. After a sustained period of consolidation, we factor in 20%
loan growth for FY12, which should be a welcome change for the bank. The growth
will be balanced – the international book growing at ~10%, while the domestic loan
growth is expected at ~23%. We do not expect any significant change in the loan
mix.
Key risk – international book. Our assumptions are that the international book
grows at ~10% with improved margins - this could be at risk if there is monetary
tightening in western economies (the attraction of dollar loans for Indian corporates
would dwindle). We do not see ICICI’s domestic business being able to take up the
slack, given the risk-averse approach of the management.
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