Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ICICI BANK
RECOMMENDATION: BUY
TARGET PRICE: RS.1364
FY12E P/E: 19.5X,
P/ABV: 2.2X
We recently met with the management of ICICI bank which reinforces
our existing positive outlook on the stock; management to
focus on stable growth with improving structural profitability.
We reiterate BUY on the stock.
q Post the consolidation phase, management is likely to focus on stable
growth. They have guided us that loan book is likely to grow at 18-20%
during FY11 (15-17% standalone growth and another 3% due to BoR
merger). During FY12, they are likely to witness ~20% loan growth
mainly driven by corporate and Infrastructure segments.
q The bank has been focusing on improving its funding mix by increasing
the share of CASA mix (low cost deposits). Its CASA deposits as a percentage
of total deposits increased from 28.7% at the end of FY09 to
41.7% at the end of FY10 and further to 44.2% at the end of Q3FY11.
q NIM of ICICI bank has been historically lower vis-à-vis its peers due to imbalances
in its asset & liability profiles. Although liability franchise has
improved very sharply in last 2 years, its margin has continued to drag.
However, we believe these overhangs are likely to wane over next 12-18
months.
q Asset quality has continued to improve- net NPA declined to 1.16% at the
end of Q3FY11 from 2.19% at the end of Q3FY10 and 1.37% at the end of
Q2FY11. This has come along with decline in credit costs (1.0% in
Q3FY11 as against 1.4% in Q2FY11) and improvement in coverage ratio
(PCR has reached 71.8% at the end of Q3FY11, one quarter ahead of RBI's
deadline.
q With easing credit costs, expanding CASA and curtailed operating expenses,
RoA has improved to 1.46% in Q3FY11 from 1.27% and 1.31% in
Q3FY10 and Q1FY11, respectively. We are factoring lower credit costs (60
bps in FY11 and 50 bps in FY12 as against 1.15% in FY10) during FY11-12
due to decline in delinquencies in last couple of quarters.
q We are maintaining our earning estimates for FY11 & FY12 as well as
BUY rating on the stock with the target price of Rs.1364 based on SOTP
methodology, where the value of its standalone business comes to
Rs.1128 (2.25x FY12E ABV) and the value of subsidiaries at Rs.236 (holding
company discount: 20% to the fair value of its subsidiaries at Rs.295).
Management to focus on stable albeit profitable growth
Post the consolidation phase, management is likely to focus on stable growth. They
have guided us that loan book is likely to grow at 18-20% during FY11 (15-17%
standalone growth and another 3% due to BoR merger). During FY12, they are
likely to witness ~20% loan growth mainly driven by corporate and Infrastructure
segments.
During FY12, loan book growth is likely to be led by the domestic book (~22% YoY)
whereas International book is likely to grow at slower pace (only 10-15%). Within
domestic book, corporate and Infrastructure segments are likely to grow at faster
pace. Retail book is likely to grow at ~15% (in line with the system) with main focus
on the mortgage business.
Retail book which had been a drag for previous 8-9 quarters on overall loan growth
has ceased to decline further since Q1FY11. Within retail segment, bank has been
focusing on opportunities in mortgages and vehicle finance, while reducing unsecured
retail loans like credit cards and personal loans.
After two years of conscious consolidation, bank is refocusing on balance sheet
growth. Management is likely to focus on stable albeit profitable growth with improvement
in the business mix (both assets and liabilities).
Improvement in liability franchise has been positive
The bank has been focusing on improving its funding mix by increasing the share of
CASA mix (low cost deposits). Its CASA deposits as a percentage of total deposits
increased from 28.7% at the end of FY09 to 41.7% at the end of FY10 and further
to 44.2% at the end of Q3FY11.
ICICI bank has been focusing on branches to become key points of customer acquisition
and service. It has expanded branch network from 1419 at the end of FY09 to
1707 at the end of FY10 and further to 2512 branches (including 467 from e-BOR) at
the end of Q3FY11. We see a big opportunity for ICICI bank to leverage the existing
underutilized branches of BoR, which would be positive for the ICICI bank in the
medium to long term.
NIM structurally lower; overhangs are likely to wane over next
12-18 months
NIM of ICICI bank has been historically lower vis-à-vis its peers due to imbalances in
its asset & liability profiles. Although liability franchise has improved very sharply in
last 2 years, its margin has continued to drag. However, we believe these overhangs
are likely to wane over next 12-18 months.
NIM remained flat at 2.6% during Q3FY11, both QoQ as well as YoY. Despite improvement
in liability franchise over last couple of quarters leading to lower funding
costs, NIM has not improved.
Apart from shift in strategy from high margin unsecured loan book to relatively low
margin secured loan book, there has been some other drags on the margins.
a) Currently it is providing ~Rs.1.0 bn / quarter worth of credit losses on securitized
book which are booked under the interest income line. Management has guided
that this impact would cease from FY13 onwards.
b) Its International book has lower NIM (~0.8%) as compared to its domestic NIM
(~3.0%). However, the bank has started focusing on incremental NIM on its International
book (currently generating 1.5-2.0%). We believe this overhang to
wane with the decline in share of overseas book (as it lags domestic book
growth) along with improvement in its margins.
c) ICICI bank also has Rs.30 bn worth of delinquent loans sold to ARCIL in exchange
for security receipts. As these security receipts do not have any coupon
associated with them, so they are drag on margins. However, with growing loan
book, the share of ARCIL portfolio would decline and hence reducing the drag
on NIM.
Asset quality has stabilized; going forward, lower credit cost is
likely to boost its earnings, in our view.
Net NPA declined to 1.16% at the end of Q3FY11 from 2.19% at the end of
Q3FY10 and 1.37% at the end of Q2FY11. In absolute terms also, it declined 34.9%
YoY and 10.0% QoQ. Its provision coverage ratio has improved to 71.8% at the end
of Q3FY11 from 51.2% and 69.0% at the end of Q3FY10 and Q2FY11, respectively.
With easing credit costs, expanding CASA and curtailed operating expenses, RoA
has improved to 1.46% in Q3FY11 from 1.27% and 1.31% in Q3FY10 and Q1FY11,
respectively. Management has guided that return profile would improve further with
RoA and RoE rising to 1.7% and 15.0%, respectively by FY13.
We have factored in lower credit costs (60 bps in FY11 and 50 bps in FY12 as
against 1.15% in FY10) during FY11-12 due to decline in delinquencies in last
couple of quarters.
Valuation and Recommendation
After successfully executing the 4Cs strategy (CASA, Cost optimization, Credit quality
and Capital conservation), bank has now adopted the 5Cs strategy (Credit
growth, CASA, Cost optimization, Credit quality and Customer service).
Now, we believe profitable growth would assume centre-stage for the bank. We
expect, domestic loan book to grow in line with the system. However, due to conscious
strategy of curtailing growth in the International book, overall growth is expected
to be at 18.4% and 21.1% in FY11E and FY12E, respectively.
At the current market price of Rs.1100, the stock is trading at 19.5x its FY12E earnings
and 2.2x its FY12E ABV. We are maintaining our earning estimate for FY11E &
FY12E and expect net profit for FY11E and FY12E to be 51.8 bn and Rs.65.1 bn,
respectively. This would result into an EPS of Rs.45.7 and Rs.56.5 for FY11E and
FY12E, respectively. Adjusted book value for FY11E and FY12E is estimated to be
Rs.458.7 and Rs.501.3, respectively
On the basis of SOTP, we maintain BUY rating on the stock with the target price of
Rs.1364, where the value of its standalone business comes to Rs.1128 (2.25x FY12E
ABV) and the value of subsidiaries at Rs.236 (holding company discount: 20% to the
fair value of its subsidiaries at Rs.295).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ICICI BANK
RECOMMENDATION: BUY
TARGET PRICE: RS.1364
FY12E P/E: 19.5X,
P/ABV: 2.2X
We recently met with the management of ICICI bank which reinforces
our existing positive outlook on the stock; management to
focus on stable growth with improving structural profitability.
We reiterate BUY on the stock.
q Post the consolidation phase, management is likely to focus on stable
growth. They have guided us that loan book is likely to grow at 18-20%
during FY11 (15-17% standalone growth and another 3% due to BoR
merger). During FY12, they are likely to witness ~20% loan growth
mainly driven by corporate and Infrastructure segments.
q The bank has been focusing on improving its funding mix by increasing
the share of CASA mix (low cost deposits). Its CASA deposits as a percentage
of total deposits increased from 28.7% at the end of FY09 to
41.7% at the end of FY10 and further to 44.2% at the end of Q3FY11.
q NIM of ICICI bank has been historically lower vis-à-vis its peers due to imbalances
in its asset & liability profiles. Although liability franchise has
improved very sharply in last 2 years, its margin has continued to drag.
However, we believe these overhangs are likely to wane over next 12-18
months.
q Asset quality has continued to improve- net NPA declined to 1.16% at the
end of Q3FY11 from 2.19% at the end of Q3FY10 and 1.37% at the end of
Q2FY11. This has come along with decline in credit costs (1.0% in
Q3FY11 as against 1.4% in Q2FY11) and improvement in coverage ratio
(PCR has reached 71.8% at the end of Q3FY11, one quarter ahead of RBI's
deadline.
q With easing credit costs, expanding CASA and curtailed operating expenses,
RoA has improved to 1.46% in Q3FY11 from 1.27% and 1.31% in
Q3FY10 and Q1FY11, respectively. We are factoring lower credit costs (60
bps in FY11 and 50 bps in FY12 as against 1.15% in FY10) during FY11-12
due to decline in delinquencies in last couple of quarters.
q We are maintaining our earning estimates for FY11 & FY12 as well as
BUY rating on the stock with the target price of Rs.1364 based on SOTP
methodology, where the value of its standalone business comes to
Rs.1128 (2.25x FY12E ABV) and the value of subsidiaries at Rs.236 (holding
company discount: 20% to the fair value of its subsidiaries at Rs.295).
Management to focus on stable albeit profitable growth
Post the consolidation phase, management is likely to focus on stable growth. They
have guided us that loan book is likely to grow at 18-20% during FY11 (15-17%
standalone growth and another 3% due to BoR merger). During FY12, they are
likely to witness ~20% loan growth mainly driven by corporate and Infrastructure
segments.
During FY12, loan book growth is likely to be led by the domestic book (~22% YoY)
whereas International book is likely to grow at slower pace (only 10-15%). Within
domestic book, corporate and Infrastructure segments are likely to grow at faster
pace. Retail book is likely to grow at ~15% (in line with the system) with main focus
on the mortgage business.
Retail book which had been a drag for previous 8-9 quarters on overall loan growth
has ceased to decline further since Q1FY11. Within retail segment, bank has been
focusing on opportunities in mortgages and vehicle finance, while reducing unsecured
retail loans like credit cards and personal loans.
After two years of conscious consolidation, bank is refocusing on balance sheet
growth. Management is likely to focus on stable albeit profitable growth with improvement
in the business mix (both assets and liabilities).
Improvement in liability franchise has been positive
The bank has been focusing on improving its funding mix by increasing the share of
CASA mix (low cost deposits). Its CASA deposits as a percentage of total deposits
increased from 28.7% at the end of FY09 to 41.7% at the end of FY10 and further
to 44.2% at the end of Q3FY11.
ICICI bank has been focusing on branches to become key points of customer acquisition
and service. It has expanded branch network from 1419 at the end of FY09 to
1707 at the end of FY10 and further to 2512 branches (including 467 from e-BOR) at
the end of Q3FY11. We see a big opportunity for ICICI bank to leverage the existing
underutilized branches of BoR, which would be positive for the ICICI bank in the
medium to long term.
NIM structurally lower; overhangs are likely to wane over next
12-18 months
NIM of ICICI bank has been historically lower vis-à-vis its peers due to imbalances in
its asset & liability profiles. Although liability franchise has improved very sharply in
last 2 years, its margin has continued to drag. However, we believe these overhangs
are likely to wane over next 12-18 months.
NIM remained flat at 2.6% during Q3FY11, both QoQ as well as YoY. Despite improvement
in liability franchise over last couple of quarters leading to lower funding
costs, NIM has not improved.
Apart from shift in strategy from high margin unsecured loan book to relatively low
margin secured loan book, there has been some other drags on the margins.
a) Currently it is providing ~Rs.1.0 bn / quarter worth of credit losses on securitized
book which are booked under the interest income line. Management has guided
that this impact would cease from FY13 onwards.
b) Its International book has lower NIM (~0.8%) as compared to its domestic NIM
(~3.0%). However, the bank has started focusing on incremental NIM on its International
book (currently generating 1.5-2.0%). We believe this overhang to
wane with the decline in share of overseas book (as it lags domestic book
growth) along with improvement in its margins.
c) ICICI bank also has Rs.30 bn worth of delinquent loans sold to ARCIL in exchange
for security receipts. As these security receipts do not have any coupon
associated with them, so they are drag on margins. However, with growing loan
book, the share of ARCIL portfolio would decline and hence reducing the drag
on NIM.
Asset quality has stabilized; going forward, lower credit cost is
likely to boost its earnings, in our view.
Net NPA declined to 1.16% at the end of Q3FY11 from 2.19% at the end of
Q3FY10 and 1.37% at the end of Q2FY11. In absolute terms also, it declined 34.9%
YoY and 10.0% QoQ. Its provision coverage ratio has improved to 71.8% at the end
of Q3FY11 from 51.2% and 69.0% at the end of Q3FY10 and Q2FY11, respectively.
With easing credit costs, expanding CASA and curtailed operating expenses, RoA
has improved to 1.46% in Q3FY11 from 1.27% and 1.31% in Q3FY10 and Q1FY11,
respectively. Management has guided that return profile would improve further with
RoA and RoE rising to 1.7% and 15.0%, respectively by FY13.
We have factored in lower credit costs (60 bps in FY11 and 50 bps in FY12 as
against 1.15% in FY10) during FY11-12 due to decline in delinquencies in last
couple of quarters.
Valuation and Recommendation
After successfully executing the 4Cs strategy (CASA, Cost optimization, Credit quality
and Capital conservation), bank has now adopted the 5Cs strategy (Credit
growth, CASA, Cost optimization, Credit quality and Customer service).
Now, we believe profitable growth would assume centre-stage for the bank. We
expect, domestic loan book to grow in line with the system. However, due to conscious
strategy of curtailing growth in the International book, overall growth is expected
to be at 18.4% and 21.1% in FY11E and FY12E, respectively.
At the current market price of Rs.1100, the stock is trading at 19.5x its FY12E earnings
and 2.2x its FY12E ABV. We are maintaining our earning estimate for FY11E &
FY12E and expect net profit for FY11E and FY12E to be 51.8 bn and Rs.65.1 bn,
respectively. This would result into an EPS of Rs.45.7 and Rs.56.5 for FY11E and
FY12E, respectively. Adjusted book value for FY11E and FY12E is estimated to be
Rs.458.7 and Rs.501.3, respectively
On the basis of SOTP, we maintain BUY rating on the stock with the target price of
Rs.1364, where the value of its standalone business comes to Rs.1128 (2.25x FY12E
ABV) and the value of subsidiaries at Rs.236 (holding company discount: 20% to the
fair value of its subsidiaries at Rs.295).
No comments:
Post a Comment