ICICI -Consolidated profit set for a major jump ::Credit Suisse,

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● ICICI’s consolidated ROE is set for a major uplift (+360 bp to 15%)
on account of a big jump in ‘accounting profit’ at its life insurance
business.
● In FY11, buoyed by earnings from back book, strong lapse
income and drop in new business strain (new business dropped
26%YoY), accounting profit jumped to Rs8.1 bn.
● We expect a further 60% rise in FY12 as new business growth is
slack and accrual of profits from in-force policies. Reported ROE of
life insurance is likely to be as high as 35-45% in FY12 and FY13.
However, the ‘value’-accretion in life business is likely to be meagre
on account of depressed new business margins and growth.
● Standalone bank ROE, however, remains sub-cost of capital
owing to low returns from subsidiary investments (ROE of
international subs is just 6%). While life insurance accounting
profit will drive up consolidated earnings, we maintain our life
insurance valuation at US$3.0 bn (Rs86/share – based on the
appraisal value) as new business margins remain under pressure.
We maintain our OUTPERFORM rating.