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Action: Initiate coverage with a Buy rating and a TP of INR1,050
We are positive on ICICI, as we believe the bank's purged loan book, high
capital adequacy and retail lending orientation will ensure reasonable
earnings growth, despite factoring in high LLPs for FY13F.
Factoring in 105bps in LLP to account for possible bad loans from
the power sector
We are building in LLPs of 75bps and 105bps for FY12F and FY13F,
respectively, as ICICI has unseasoned infrastructure exposure of over 5%
and power sector exposure of 2%. Our LLP estimates are conservative for
the current cycle versus a six-year average of 126bps for ICICI.
Stronger balance sheet and leaner opex structure to sustain RoA
We expect a stable NIM of 2.63% for FY13F on the back of loan growth of
17% for FY12F and 20% for FY13F, backed by an average CASA ratio
41.3% for FY12-13F. We expect RoA of 1.28% for FY12F and 1.25% for
FY13F, with a comfortable leverage of 8.4x for FY12-13F.
Valuation: Trades at 1.7x FY13F ABV and 15.6x FY13F EPS
Our target price of INR1,050 is derived from INR870 for the core bank and
INR180 for subsidiaries. At our TP for the core bank, ICICI would trade at
1.7x FY13F ABV and 15.6x FY13F EPS for an ROE of 11%.
Catalysts: Reversal of global portfolio risk aversion, revival in global
corporate activity of Indian companies, resolution of infrastructurerelated
bottlenecks would drive upside risk for ICICI Bank, in our
view.
Valuation
Initiate coverage with a Buy rating and TP of INR1,050
We expect ICICI Bank to grow its loan book at a CAGR of 18% over FY11-13F. We
expect this to drive revenue and PAT CAGRs of 22% and 21%, respectively, over the
same period after factoring in flat margins of 2.6%. We expect ICICI Bank to record ROA
and adjusted ROE of 1.25% and 11.04%, respectively, for FY13F. ICICI Bank shares are
trading at 1.3x FY13F adjusted book value, which is 1 standard deviation above its
historical mean of 1.9x one-year forward ABV. Our TP of INR1,050 implies FY13F
P/ABV of 1.67x. We arrive at our target price of INR1,050 by valuing the subsidiaries on
a sum-of-the-parts basis at INR180 and using a three-stage residual-income valuation
method for core banking business which assumes the following:
• We estimate loan book growth of 16.9% and 19.7% for FY12F and FY13F,
respectively, versus management guidance of 18-20%.
• We expect fee income to grow at 8.4% in FY12F and 20.6% in FY13F.
• We expect NIM to stay flat at 2.6% for FY12F and FY13F, in line with management
guidance of 2.6% for FY12F.
• On the bad loan front, we build in an increase in GNPLs to INR142.7bn (4.55% of loan
book) by FY13F, from INR100.3bn in FY11. We also take NNPLs to INR38.4bn for
FY13F, from INR24.1bn in FY11, with corresponding P&L provisions of INR138bn and
INR76.3bn.
• ICICI Bank’s current capital adequacy ratio is 19.6%, with about 13.4% in tier-1. We do
not build any dilution from capital-raising into our model.
• ICICI Bank’s employee headcount was 56,969 as on end FY11, and we expect an
addition of 16,291 new employees by end FY13F. We expect the cost/income ratio to
be at 41.7% in FY13F, from 42.2% in FY11. We expect the cost/asset ratio to stay flat
at 1.73% for FY13F, from 1.72% in FY11.
• We expect pro forma diluted EPS of INR48.45 for FY12F and INR55.58 for FY13F. The
current valuation at FY12F P/ABV of 1.3x and FY13F diluted P/E of 12.6x looks
attractive, in our view. Our TP of INR1,050 implies 1.67x adjusted BV (adjusted ROE of
11.04%) and 15.6x EPS for FY13F.
Key catalysts: Accelerated monetary policy easing, and policy intervention to resolve
power sector bottlenecks, such as fuel availability and SEB (state electricity board)
financial health, are key upside catalysts.
Key risks: RBI persisting with a tight money policy, policy logjam with respect to power
sector bottlenecks and continued global macro uncertainty are downside risks.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Action: Initiate coverage with a Buy rating and a TP of INR1,050
We are positive on ICICI, as we believe the bank's purged loan book, high
capital adequacy and retail lending orientation will ensure reasonable
earnings growth, despite factoring in high LLPs for FY13F.
Factoring in 105bps in LLP to account for possible bad loans from
the power sector
We are building in LLPs of 75bps and 105bps for FY12F and FY13F,
respectively, as ICICI has unseasoned infrastructure exposure of over 5%
and power sector exposure of 2%. Our LLP estimates are conservative for
the current cycle versus a six-year average of 126bps for ICICI.
Stronger balance sheet and leaner opex structure to sustain RoA
We expect a stable NIM of 2.63% for FY13F on the back of loan growth of
17% for FY12F and 20% for FY13F, backed by an average CASA ratio
41.3% for FY12-13F. We expect RoA of 1.28% for FY12F and 1.25% for
FY13F, with a comfortable leverage of 8.4x for FY12-13F.
Valuation: Trades at 1.7x FY13F ABV and 15.6x FY13F EPS
Our target price of INR1,050 is derived from INR870 for the core bank and
INR180 for subsidiaries. At our TP for the core bank, ICICI would trade at
1.7x FY13F ABV and 15.6x FY13F EPS for an ROE of 11%.
Catalysts: Reversal of global portfolio risk aversion, revival in global
corporate activity of Indian companies, resolution of infrastructurerelated
bottlenecks would drive upside risk for ICICI Bank, in our
view.
Valuation
Initiate coverage with a Buy rating and TP of INR1,050
We expect ICICI Bank to grow its loan book at a CAGR of 18% over FY11-13F. We
expect this to drive revenue and PAT CAGRs of 22% and 21%, respectively, over the
same period after factoring in flat margins of 2.6%. We expect ICICI Bank to record ROA
and adjusted ROE of 1.25% and 11.04%, respectively, for FY13F. ICICI Bank shares are
trading at 1.3x FY13F adjusted book value, which is 1 standard deviation above its
historical mean of 1.9x one-year forward ABV. Our TP of INR1,050 implies FY13F
P/ABV of 1.67x. We arrive at our target price of INR1,050 by valuing the subsidiaries on
a sum-of-the-parts basis at INR180 and using a three-stage residual-income valuation
method for core banking business which assumes the following:
• We estimate loan book growth of 16.9% and 19.7% for FY12F and FY13F,
respectively, versus management guidance of 18-20%.
• We expect fee income to grow at 8.4% in FY12F and 20.6% in FY13F.
• We expect NIM to stay flat at 2.6% for FY12F and FY13F, in line with management
guidance of 2.6% for FY12F.
• On the bad loan front, we build in an increase in GNPLs to INR142.7bn (4.55% of loan
book) by FY13F, from INR100.3bn in FY11. We also take NNPLs to INR38.4bn for
FY13F, from INR24.1bn in FY11, with corresponding P&L provisions of INR138bn and
INR76.3bn.
• ICICI Bank’s current capital adequacy ratio is 19.6%, with about 13.4% in tier-1. We do
not build any dilution from capital-raising into our model.
• ICICI Bank’s employee headcount was 56,969 as on end FY11, and we expect an
addition of 16,291 new employees by end FY13F. We expect the cost/income ratio to
be at 41.7% in FY13F, from 42.2% in FY11. We expect the cost/asset ratio to stay flat
at 1.73% for FY13F, from 1.72% in FY11.
• We expect pro forma diluted EPS of INR48.45 for FY12F and INR55.58 for FY13F. The
current valuation at FY12F P/ABV of 1.3x and FY13F diluted P/E of 12.6x looks
attractive, in our view. Our TP of INR1,050 implies 1.67x adjusted BV (adjusted ROE of
11.04%) and 15.6x EPS for FY13F.
Key catalysts: Accelerated monetary policy easing, and policy intervention to resolve
power sector bottlenecks, such as fuel availability and SEB (state electricity board)
financial health, are key upside catalysts.
Key risks: RBI persisting with a tight money policy, policy logjam with respect to power
sector bottlenecks and continued global macro uncertainty are downside risks.
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