Financials - You can still bank on this sector… :: ICICI Securities, report link

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You can still bank on this sector…
The Bank Nifty put up a strong performance in the last three months,
gaining 23% YoY vs. Nifty gaining just 3%. The southward movement in
CPI to 4.38%, 10 year G-sec yields declining to 7.9% (>50 bps in three
months) and growing expectation of a repo rate cut have continued the
momentum in banking stocks. Banking credit growth moderated to 10.6%
YoY at | 6303481 crore as on December 12, 2014 as growth in the large
corporate segment and big ticket infra loans are not yet visible while past
sanctions are dwindling now. Incrementally, retail loans contributed
43.2% of incremental YTD credit, growing faster at 16.3% YoY as on
October 2014. Hence, total credit growth expectation is still muted around
13-14% for FY15E. Though the new government has driven acceleration
in sentiments, the pick-up in capex or improvement in mid corporate
performance is still not visible leading to subdued growth and the key
concern area of asset quality stress continuing.
Sector GNPA rose 6.7% QoQ in September 2014 quarter to | 275550
crore forming 4.4% of advances while restructured assets (RA) were at
~6.1% of advances (| 375000 crore-September 2014). We expect 10%
GNPA rise by FY16E after 19% rise expected in FY15 for coverage banks

We analysed the branch and employee matrix for the banking sector,
which is indicating the valuation gap in store for future. We even
performed an RoE and P/ABV matrix based charting for our coverage
universe.
Large private banks like HDFC Bank and IndusInd Bank are trading at
premium valuations with strong RoE >20% while Kotak Mahindra Bank
trades rich over 6x P/ABV. Accordingly, the basket of large PSU banks like
SBI, PNB and BoB appear strong for upside while Axis Bank, among large
private banks, offers an opportunity for further appreciation with
reasonable valuations.
We maintain our bullish stance on select large PSU banks and expect
consistency in private banks to continue with stable performance. We
have raised target prices based on revised market multiples. Accordingly,
Axis Bank, PNB are our top picks in banking sector in the current
environment based on our sector valuation analysis (Mcap/branch). We
prefer SBI as it is market leader with lower stress levels in asset quality.
LINK
http://content.icicidirect.com/mailimages/IDirect_Banking_SectorReport_Dec14.pdf