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ICICI Bank
Consolidated earnings: ‘A new
perspective’; Reiterate Buy
„Meeting reaffirms our positive view on banks’ positioning
We met with ICICI Bank and I-Pru Life insurance recently. The encouraging part
is that we believe earnings growth is still on track for +28-29% in FY12-13 (net
profit growth of +30/28% in FY12/13). The bank has, however, previously stated
that it has moderated its growth stance to ~18% (loans) while expecting margins
to be stable to rising (FY13). Asset quality comfort is still high. In our view, bank is
amongst the best positioned to manage the current macro challenges; yet also
deliver on earnings.
Shift to consol. earnings to address low ROE, SOTP issues
From a valuation standpoint, the 2 key issues for the bank have been its “low
reported ROE for the standalone bank” as part of its capital is invested in nonbanking biz., earnings from which are not captured in ROE. The other debate is
on the SOTP value assigned to its non-bank biz. A shift to consol. earnings will
address both these issues. Further, it is also a more appropriate time to begin
considering consol. earnings as the life insurance co. is reporting profits.
Cons. earnings growth at +35%; ROE at +17%; PO of Rs1400
We est. consol. earnings to grow +38/32% in FY12/13 driven by the life insurance
co. (‘headline’ earnings may rise+2x in 2 years) and ~29% CAGR growth in the
bank’s standalone earnings . We reiterate Buy and PO of Rs1400 as we think
stock can trade upto +2.3-2.4x adj. BV given consol. ROE of +17%, good asset
quality (most seasoned book), well capitalized and delivering earnings growth of
+35% CAGR (cons.) in FY11-13. Finally, bank may surprise on 1Q12 earnings
too. Any change by MSCI to halve ICICI Bk weight in its Index is near term risk
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