Bull’s Eye Scrip Research Report for Week 56

Bull’s Eye Scrip Research Report for Week 56

 

Improved deposit mix to reflect in better NIMs: The distinguishing feature of the Bank’s performance in FY2011 was the improvement in CASA ratio to 45% (transformative considering that the ratio was as low as 22% at the end of FY2007 and 29% even as recently as FY2009). In light of this change in the liability mix, we expect the bank's NIMs to improve to ~2.7% over FY2012 and FY2013, contrary to the overall trend for the sector.

Well-positioned to garner strong market share gains in CASA deposits: In our view, the bank’s substantial branch expansion from 959 branches as of 3QFY2008 to 2,529 branches as of FY2011 (including the entire branch network of BoR) as well as strong capital adequacy at 19.5% (tier-I at 13.2%) has positioned it to gain market share in credit and CASA.

Worst of Asset Quality issues over: The bank's asset quality showed further improvement in 4QFY2011, with gross NPAs declining 1.5% qoq and net NPAs declining from the peak of `4,608cr in 1QFY2010 to `2,407 cr in 4QFY2011.

Valuations attractive: Keeping in mind the rising interest rate environment, ICICI Bank’s high CASA ratios and CASA market share gains are expected to underpin relatively stronger earnings growth momentum. We expect the bank to deliver strong earnings CAGR of 24.5% over FY2011-13 and an ROE of 15.6% by FY2013. At the CMP, without adjusting value of subsidiaries, the stock is trading at 2.0x FY2013E ABV (2.05x post-adjustment). If we factor in 0.5x valuation for the bank's investment in its international banking subsidiaries, the rest of the bank (including other subsidiaries) is trading at 2.14x FY2013E ABV. We have valued subsidiaries at `201 and the core bank at `1,154 (2.65x FY2013E ABV) .We maintain our Buy recommendation on the stock with a target price of `1 355.