Buy ICICI Bank - TP Rs.1000 - Emkay

Buy, Target Price Rs 1,000 Well on track

Lower slippages and NPA seasoning to limit incremental credit cost at 70bps : ICICI Bank has already seen seasoning of the NPA book with amount of NPAs in SS and D1 category reducing by 2% of its loans. Credit cost to remain at 70bps due to controlled slippages and incremental NPAs only in SS and D1 category requiring low provisions.

Well built operating matrix: Remarkable improvement in operating matrix over FY09-12E with CASA at 40%+, domestic NIMs at almost 4%, PCR at 80%. Subsidiaries reported mixed performance for FY12 with insurance and AMC business generating profits. Balance sheet consolidation continues at its UK subsidiary.

Adequate capital; lower leverage the only constrain: Adequately capitalized for growth with tier I CAR at 12.7% (total CAR at 18.5%). Improvement in leverage ratio with superior 1.6%+ RoA would ensure better RoEs (Core RoE set to increase to 16%-18% over FY13-14E).

Attractive valuations: Concerns over asset quality and margin maintenance had dragged stock performance in past. However, steady state balance sheet expansion with easing NPA pressure will warrant re-rating. We have valued the bank at 1.5x standalone FY13E ABV plus Rs250/share for subsidiaries.

Near term catalyst and earnings performance: We expect the bank to witness 17% CAGR in NII / customer assets each over FY12-14E. Improvement in margins with easing credit cost pressures would aid RoA performance. Any material spike in restructured loan portfolio remains key risk in near term. Maintain positive bias.

Source : Equity Bulls

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