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Improved deposit mix to reflect in better NIMs: ICICI Bank is
executing a credible strategy of consolidation that will drive a
materially improved balance sheet and earnings quality over
the next two years. The distinguishing feature of the bank's
performance in FY2011 was the improvement in its CASA ratio
to 45% (transformative considering that the ratio was as low as
22% in FY2007 and 29% even as recently as FY2009). In light of
this change in the liability mix, we expect the bank's NIMs to
improve to ~2.7% over FY2012 and FY2013, contrary to the
overall trend for the sector.
Well positioned to garner strong market share gains in CASA
deposits: In our view, the bank's substantial branch expansion
from 959 branches as of 3QFY2008 to 2,529 branches as of
FY2011 (including the entire branch network of BoR) as well as
strong capital adequacy at 19.5% (tier-I at 13.2%) has positioned
it to gain market share in credit and CASA. In fact, the bank has
once again started gaining market share in savings accounts; in
FY2011, the bank improved its market share of savings deposits
by ~10bp over FY2010 levels, capturing a substantial 5.8%
incremental market share.
Worst of asset-quality issues over: The bank's asset quality showed
further improvement in 4QFY2011, with gross NPAs declining
by 1.5% qoq and net NPAs declining from the peak of `4,608cr
in 1QFY2010 to `2,407cr in 4QFY2011. NPA provisions to
average assets declined to 0.5% in FY2011 from 1.2% in FY2010.
We expect NPA provisions to average assets to dip to 0.3% each
for FY2012 and FY2013, driving an improvement in RoA to 1.4%.
Valuations attractive: Keeping in mind the higher interest rate
environment, ICICI Bank's high CASA ratios and CASA market
share gains are expected to underpin relatively stronger earnings
growth momentum. We expect the bank to deliver strong earnings
CAGR of 24.4% over FY2011-13 and an ROE of 15.5% by
FY2013. At the CMP, without adjusting value of subsidiaries, the
stock is trading at attractive valuations of 1.9x FY2013E ABV
(2.0x post-adjustment). If we factor in 0.5x valuation for the bank's
investment in its international banking subsidiaries, the rest of
the bank (including other subsidiaries) is trading at 2.1x FY2013E
ABV. We have valued subsidiaries at `201 and the core bank at
`1,156 (2.65x FY2013E ABV). We maintain our Buy
recommendation on the stock with a target price of `1,357.
Moreover, the bank's quarterly earnings progression is expected
to be strong, which may drive further rerating of the stock.
SOTP valuation":: Value per share
Core Bank 1,156
Home Finance and International subsidiaries 46
Life Insurance 100
Others 55
SOTP Value 1,357
Source: Angel Research
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Improved deposit mix to reflect in better NIMs: ICICI Bank is
executing a credible strategy of consolidation that will drive a
materially improved balance sheet and earnings quality over
the next two years. The distinguishing feature of the bank's
performance in FY2011 was the improvement in its CASA ratio
to 45% (transformative considering that the ratio was as low as
22% in FY2007 and 29% even as recently as FY2009). In light of
this change in the liability mix, we expect the bank's NIMs to
improve to ~2.7% over FY2012 and FY2013, contrary to the
overall trend for the sector.
Well positioned to garner strong market share gains in CASA
deposits: In our view, the bank's substantial branch expansion
from 959 branches as of 3QFY2008 to 2,529 branches as of
FY2011 (including the entire branch network of BoR) as well as
strong capital adequacy at 19.5% (tier-I at 13.2%) has positioned
it to gain market share in credit and CASA. In fact, the bank has
once again started gaining market share in savings accounts; in
FY2011, the bank improved its market share of savings deposits
by ~10bp over FY2010 levels, capturing a substantial 5.8%
incremental market share.
Worst of asset-quality issues over: The bank's asset quality showed
further improvement in 4QFY2011, with gross NPAs declining
by 1.5% qoq and net NPAs declining from the peak of `4,608cr
in 1QFY2010 to `2,407cr in 4QFY2011. NPA provisions to
average assets declined to 0.5% in FY2011 from 1.2% in FY2010.
We expect NPA provisions to average assets to dip to 0.3% each
for FY2012 and FY2013, driving an improvement in RoA to 1.4%.
Valuations attractive: Keeping in mind the higher interest rate
environment, ICICI Bank's high CASA ratios and CASA market
share gains are expected to underpin relatively stronger earnings
growth momentum. We expect the bank to deliver strong earnings
CAGR of 24.4% over FY2011-13 and an ROE of 15.5% by
FY2013. At the CMP, without adjusting value of subsidiaries, the
stock is trading at attractive valuations of 1.9x FY2013E ABV
(2.0x post-adjustment). If we factor in 0.5x valuation for the bank's
investment in its international banking subsidiaries, the rest of
the bank (including other subsidiaries) is trading at 2.1x FY2013E
ABV. We have valued subsidiaries at `201 and the core bank at
`1,156 (2.65x FY2013E ABV). We maintain our Buy
recommendation on the stock with a target price of `1,357.
Moreover, the bank's quarterly earnings progression is expected
to be strong, which may drive further rerating of the stock.
SOTP valuation":: Value per share
Core Bank 1,156
Home Finance and International subsidiaries 46
Life Insurance 100
Others 55
SOTP Value 1,357
Source: Angel Research
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