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ICICI Bank- Well positioned for FY12
�� Where we are
While the stock has underperformed the broad market by 8% in the last month, it
is up 25% YTD, having outperformed the broader market by ~10% YTD.
Concerns on exposures to telcos; MFIs, real estate, and margin pressures owing
to deposit hikes have impacted banking stocks (incl. ICICI BK). But, in our view,
ICICI Bank offers the best comfort on asset quality having the most seasoned
book and lowest exposure to telcos; <0.5% impact from possible MFI hit. Further,
it has raised lending rates and is seeing structural shift in its loan mix that will
support margins. Finally, ICICI Bank has delivered on its strategy of taking CASA
to +44%; is well capitalized and is positioned to capitalize on growth in CY11.
Where we are going
We believe ICICI Bank is well positioned to benefit from any uptick in loan growth
and is beginning to focus on taking market share in the domestic market. We
estimate loan growth at ~20% in FY11/12. This coupled with the changing loan
mix and recent lending rate hikes should help expand margins in FY12 to ~2.8%.
Further increased branch network and distribution (due to BoR acquisition) should
also help CASA, margins, and fee income. We estimate earnings growth of ~30%
in FY11/12 on falling credit costs at 125/90bp in FY11/12 against 240bp in FY10
and improving topline and falling cost-income ratio.
ICICI Bank remains one of our top picks given its great FY12 positioning. We
think the banking biz can trade at 2.6X FY12 adj. BV (less value of subs), owing
to +30% earnings growth; high asset quality comfort and Tier I of >14%. RoA to
rise to +1.6% from 1.1% in FY10; core RoE at ~16% by FY12. Subs Rs237/shr.
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