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ICICI BANK
PRICE: RS.697 RECOMMENDATION: BUY
TARGET PRICE: RS.1089 FY13E P/E: 11.2X, P/ABV: 1.3X
q We recently met with the management and found their tone to be more
of 'cautious optimism'. They indicated that loan growth for FY12 is likely
to be in the range of 17-18%, while next year (FY13) could be even more
subdued (in the range of 15-16%). They have also indicated that focus on
asset quality and NIM would continue, going forward.
q Strong liability franchise is key to the likely improvement in its future
NIM beside some kicker coming from the run-off of ~Rs.4.0 bn (FY12)
worth of credit losses on securitized book being booked under the interest income line. We are modeling blended NIM to come at 2.66%/2.73%
during FY12/13, after factoring in interest paid on saving deposits to be
4.50% during FY13 (hike of 50 bps from current level).
q Exposure to power sector (~Rs.98 bn; ~4.4% of advances in FY11) remains a concern; however, high exposure to retail (~35%) and low exposure to SME (~4.7%) provides some relative comfort. We are also less
worried on CRE (commercial real estate) book where exposure stands at
~Rs.250 bn (FY11) but encompasses lower risk as LTV is high (~2x cover).
q International book has well matched ALM; during next 3-4 months of
FY12, overseas branches have ~$1.25 bn of forex liability maturing while
they carry ~$900 mn of B/S liquidity and expect another ~$500 mn to be
generated from asset maturity. Similarly, they have guided that ~$2.4 bn
liquidity from asset maturity will largely match the ~$2.5 bn liability maturity coming during FY13.
q Management has once again maintained their earlier guidance of subdued performance (7-8% YoY growth) on fee-based income front on back
of limited corporate investment activity and meek performance of retail
loan growth. On the concern arising out of off-B/S items, they tried to
allay our concern by pointing to the fact that out of total guarantee,
~70% is towards performance guarantee and rest ~30% is towards financial guarantee.
q Focus on CASA, NIM and asset quality is likely to continue, in our view;
management focus on stable growth with improving structural profitability reinforces our existing positive outlook on the stock. We reiterate
BUY on the stock with the revised TP of Rs.1089 (SOTP method), where
the value of its standalone business comes to Rs.865 (1.6x FY13E ABV)
and the value of subsidiaries at Rs.224 (holding company discount: 20%
to the fair value of its subsidiaries at Rs.280).
Management tone was of 'cautious optimism'; focus continues to
remain on asset quality and margins.
We recently met with the management and found their tone to be more of 'cautious
optimism'. They indicated that loan growth for FY12 is likely to be in the range of
17-18%, while next year (FY13) could be even more subdued (in the range of 15-
16%).
While retail book is likely to grow in the early teens, corporate book will track the
overall system trends with more focus on working capital loans. Although recent
rupee depreciation will inflate the overseas book in INR term, the recent surge in
funding costs (May 2011: LIBOR+250bps; Recent: LIBOR+470bps) could definitely act
as a dampener to overseas loan growth.
Exposure to power sector (~4.4% of advances in FY11) remains a
concern; however, high exposure to retail (~35%) and low exposure to SME (~4.7%) provides some relative comfort.
Exposure to power sector (~Rs.98 bn; ~4.4% of advances in FY11) remains a concern; however, high exposure to retail (~35%) and low exposure to SME (~4.7%)
provides some relative comfort. We are also less worried on CRE (commercial real
estate) book where exposure stands at ~Rs.250 bn (FY11) but encompasses lower
risk as LTV is high (~2x cover).
In power sector, they don't have any major exposure to UMPP or gas based power
projects. Their ~50% exposure is towards projects under implementation and also
their ~50% of projects have access to captive coal. Management also tried to assuage our concern by stating the result of the stress test done with the assumption of
20-30% of coal shortage, where borrower's DSCR still remains above one. They further said that there has been no perceptible change during last 2-3 quarters on the
power book.
Out of ~Rs.320 bn loans referred to CDR during H1FY12, ICICI bank's exposure has
been ~Rs.11 bn and we believe this could be restructured during H2FY12. One major account is GTL where exposure is ~Rs.6.5 bn including ~Rs.2.0 bn equity exposure.
On Kingfisher exposure (~Rs.6.0 bn including ~Rs.1.7 bn of equity), its interests are
partially protected with the guarantees on group companies of promoters. Going
forward, we could see some restructuring on other stressed sectors as well e.g. Infrastructure segments other than power (exposure: 5.8%), Mining (1.9%), Construction
(1.6%) and textiles (0.9%).
Lower risk on overseas book with well matched ALM; concern of
rise in CDS spread is overblown
Management has assuaged our concern on international book by pointing to well
matched ALM. They have indicated that during next 3-4 months of FY12, overseas
branches have ~$1.25 bn of forex liability maturing while they carry ~$900 mn of B/
S liquidity and expect another ~$500 mn to be generated from asset maturity. Similarly, they have guided that ~$2.4 bn liquidity from asset maturity will largely match
the ~$2.5 bn liability maturity coming during FY13.
Market has also been concerned about the rise in CDS spread (albeit with very thin
volume!!) in recent times which increased from LIBOR+250bps during May 2011 to
LIBOR+470bps during recent times. They argued that this could not impact them
unless they are borrowing from the market. The biggest challenge could be in terms
of its impact on the overseas loan growth; the interest risk is manageable as they
have well matched ALM.
Management maintains 7-8% growth guidance on fee income;
they also point to lower risk arising from off-B/S items.
Management has once again maintained their earlier guidance of subdued performance (7-8% YoY growth) on fee-based income front on back of limited corporate
investment activity and meek performance of retail loan growth. They also agreed
that recent RBI norm on forex trading could impact their forex income but did not
quantify the impact on the same.
On the concern arising out of off-B/S items, they tried to allay our concern by pointing to the fact that out of total guarantee, ~70% is towards performance guarantee
and rest ~30% is towards financial guarantee. They are also confident of the quality
of the guaranteed portfolio and many are even rated higher than the funded exposure.
Valuation and Recommendation
At the current market price of Rs.697, the stock is trading at 11.2x its FY13E earnings and 1.3x its FY13E ABV. We are modeling earnings to grow 18.2% CAGR during FY11-13E. We expect bank to focus on liability franchise (CASA mix) and profitability (RoA; RoE will improve with increase in leverage in next 2-3 years); loan
growth target would track the deposit mobilization with CASA share being maintained at ~40%.
Low return ratios have been the primary reason for relatively lower valuation for the
stock. RoA is likely to improve from 1.0% in FY09 to 1.5% in FY13E. Although,
slower B/S growth could marginally delay the leveraging up process, it is expected to
inch-up closer to its peers, and hence driving lower discount vis-à-vis its peers.
Focus on CASA, NIM and asset quality is likely to continue, in our view; management focus on stable growth with improving structural profitability reinforces our existing positive outlook on the stock.
We reiterate BUY on the stock with the revised TP of Rs.1089 (SOTP method),
where the value of its standalone business comes to Rs.865 (1.6x FY13E ABV) and
the value of subsidiaries at Rs.224 (holding company discount: 20% to the fair value
of its subsidiaries at Rs.280)
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ICICI BANK
PRICE: RS.697 RECOMMENDATION: BUY
TARGET PRICE: RS.1089 FY13E P/E: 11.2X, P/ABV: 1.3X
q We recently met with the management and found their tone to be more
of 'cautious optimism'. They indicated that loan growth for FY12 is likely
to be in the range of 17-18%, while next year (FY13) could be even more
subdued (in the range of 15-16%). They have also indicated that focus on
asset quality and NIM would continue, going forward.
q Strong liability franchise is key to the likely improvement in its future
NIM beside some kicker coming from the run-off of ~Rs.4.0 bn (FY12)
worth of credit losses on securitized book being booked under the interest income line. We are modeling blended NIM to come at 2.66%/2.73%
during FY12/13, after factoring in interest paid on saving deposits to be
4.50% during FY13 (hike of 50 bps from current level).
q Exposure to power sector (~Rs.98 bn; ~4.4% of advances in FY11) remains a concern; however, high exposure to retail (~35%) and low exposure to SME (~4.7%) provides some relative comfort. We are also less
worried on CRE (commercial real estate) book where exposure stands at
~Rs.250 bn (FY11) but encompasses lower risk as LTV is high (~2x cover).
q International book has well matched ALM; during next 3-4 months of
FY12, overseas branches have ~$1.25 bn of forex liability maturing while
they carry ~$900 mn of B/S liquidity and expect another ~$500 mn to be
generated from asset maturity. Similarly, they have guided that ~$2.4 bn
liquidity from asset maturity will largely match the ~$2.5 bn liability maturity coming during FY13.
q Management has once again maintained their earlier guidance of subdued performance (7-8% YoY growth) on fee-based income front on back
of limited corporate investment activity and meek performance of retail
loan growth. On the concern arising out of off-B/S items, they tried to
allay our concern by pointing to the fact that out of total guarantee,
~70% is towards performance guarantee and rest ~30% is towards financial guarantee.
q Focus on CASA, NIM and asset quality is likely to continue, in our view;
management focus on stable growth with improving structural profitability reinforces our existing positive outlook on the stock. We reiterate
BUY on the stock with the revised TP of Rs.1089 (SOTP method), where
the value of its standalone business comes to Rs.865 (1.6x FY13E ABV)
and the value of subsidiaries at Rs.224 (holding company discount: 20%
to the fair value of its subsidiaries at Rs.280).
Management tone was of 'cautious optimism'; focus continues to
remain on asset quality and margins.
We recently met with the management and found their tone to be more of 'cautious
optimism'. They indicated that loan growth for FY12 is likely to be in the range of
17-18%, while next year (FY13) could be even more subdued (in the range of 15-
16%).
While retail book is likely to grow in the early teens, corporate book will track the
overall system trends with more focus on working capital loans. Although recent
rupee depreciation will inflate the overseas book in INR term, the recent surge in
funding costs (May 2011: LIBOR+250bps; Recent: LIBOR+470bps) could definitely act
as a dampener to overseas loan growth.
Exposure to power sector (~4.4% of advances in FY11) remains a
concern; however, high exposure to retail (~35%) and low exposure to SME (~4.7%) provides some relative comfort.
Exposure to power sector (~Rs.98 bn; ~4.4% of advances in FY11) remains a concern; however, high exposure to retail (~35%) and low exposure to SME (~4.7%)
provides some relative comfort. We are also less worried on CRE (commercial real
estate) book where exposure stands at ~Rs.250 bn (FY11) but encompasses lower
risk as LTV is high (~2x cover).
In power sector, they don't have any major exposure to UMPP or gas based power
projects. Their ~50% exposure is towards projects under implementation and also
their ~50% of projects have access to captive coal. Management also tried to assuage our concern by stating the result of the stress test done with the assumption of
20-30% of coal shortage, where borrower's DSCR still remains above one. They further said that there has been no perceptible change during last 2-3 quarters on the
power book.
Out of ~Rs.320 bn loans referred to CDR during H1FY12, ICICI bank's exposure has
been ~Rs.11 bn and we believe this could be restructured during H2FY12. One major account is GTL where exposure is ~Rs.6.5 bn including ~Rs.2.0 bn equity exposure.
On Kingfisher exposure (~Rs.6.0 bn including ~Rs.1.7 bn of equity), its interests are
partially protected with the guarantees on group companies of promoters. Going
forward, we could see some restructuring on other stressed sectors as well e.g. Infrastructure segments other than power (exposure: 5.8%), Mining (1.9%), Construction
(1.6%) and textiles (0.9%).
Lower risk on overseas book with well matched ALM; concern of
rise in CDS spread is overblown
Management has assuaged our concern on international book by pointing to well
matched ALM. They have indicated that during next 3-4 months of FY12, overseas
branches have ~$1.25 bn of forex liability maturing while they carry ~$900 mn of B/
S liquidity and expect another ~$500 mn to be generated from asset maturity. Similarly, they have guided that ~$2.4 bn liquidity from asset maturity will largely match
the ~$2.5 bn liability maturity coming during FY13.
Market has also been concerned about the rise in CDS spread (albeit with very thin
volume!!) in recent times which increased from LIBOR+250bps during May 2011 to
LIBOR+470bps during recent times. They argued that this could not impact them
unless they are borrowing from the market. The biggest challenge could be in terms
of its impact on the overseas loan growth; the interest risk is manageable as they
have well matched ALM.
Management maintains 7-8% growth guidance on fee income;
they also point to lower risk arising from off-B/S items.
Management has once again maintained their earlier guidance of subdued performance (7-8% YoY growth) on fee-based income front on back of limited corporate
investment activity and meek performance of retail loan growth. They also agreed
that recent RBI norm on forex trading could impact their forex income but did not
quantify the impact on the same.
On the concern arising out of off-B/S items, they tried to allay our concern by pointing to the fact that out of total guarantee, ~70% is towards performance guarantee
and rest ~30% is towards financial guarantee. They are also confident of the quality
of the guaranteed portfolio and many are even rated higher than the funded exposure.
Valuation and Recommendation
At the current market price of Rs.697, the stock is trading at 11.2x its FY13E earnings and 1.3x its FY13E ABV. We are modeling earnings to grow 18.2% CAGR during FY11-13E. We expect bank to focus on liability franchise (CASA mix) and profitability (RoA; RoE will improve with increase in leverage in next 2-3 years); loan
growth target would track the deposit mobilization with CASA share being maintained at ~40%.
Low return ratios have been the primary reason for relatively lower valuation for the
stock. RoA is likely to improve from 1.0% in FY09 to 1.5% in FY13E. Although,
slower B/S growth could marginally delay the leveraging up process, it is expected to
inch-up closer to its peers, and hence driving lower discount vis-à-vis its peers.
Focus on CASA, NIM and asset quality is likely to continue, in our view; management focus on stable growth with improving structural profitability reinforces our existing positive outlook on the stock.
We reiterate BUY on the stock with the revised TP of Rs.1089 (SOTP method),
where the value of its standalone business comes to Rs.865 (1.6x FY13E ABV) and
the value of subsidiaries at Rs.224 (holding company discount: 20% to the fair value
of its subsidiaries at Rs.280)
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