Core growth, key to bank’s ROE expansion, sees pick-up: Bank seems to
be coming out of the consolidation phase set in the aftermath of the global
economic crisis. The bank’s Q1FY13 loan growth and margin performances
has surprised us positively and inspires confidence of improving core
growth trends and sustenance of robust asset quality in FY13.
Lending business return ratios converging to industry levels: Low return
ratios has been the primary reason for relatively low valuations for ICICI’s
lending business. ROAs have inched up from ~1.0% in FY09 to ~1.5% in
FY12 and we expect margin expansion to drive ROAs to ~1.6%. Core
lending business’ ROEs is expected to improve from 11% in FY10 to
15.5‐16% in FY14 driving lower valuation discount to peers.
Asset quality performance comforting; CDR pipeline extremely limited:
Gross NPAs have inched up marginally but slippages levels seem
reasonable and credit costs at ~70bps is in line with management guidance
and lower than our expectations for FY13. Current restructuring pipeline is
also extremely low providing comfort.
Valuations: Current valuations are trading at 1.6x FY13 book. Improving
ROEs, pending growth in balance sheet could imply better multiples. We
have a Mar 13-target price of Rs 1,100 per share, implying FY13 P/B of
1.95x.
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