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Research
Maintain BUY on ICICI Bank - Improved Asset Quality, NIMs to Sustain at Current Levels - Karvy
Posted On : 2013-01-16 21:20:06( TIMEZONE : IST )
ICICI Bank is currently trading at 10% premium to its five year average, whereas it is at 20% discount to the stock's +1SD valuation. Meanwhile, the stock has also outperformed the Bankex by 8% over last one year on account of its improving fundamentals. HDFC Bank is trading at 130% premium to ICICI Bank as against historical average of 100%.
Substantial Improvement in Asset Quality: There has been substantial improvement in the asset quality of the Bank with Gross NPA improving over 160 bps in last nine quarters vis-Ã -vis industry trend of further deterioration. Its restructured book at just 1.5% of loan book seems to be at comfortable zone. As per the Bank's Management, the credit cost - including restructuring related provisioning - would remain within 0.75% of loan book in FY13E.
Revival in Balance-sheet Growth: Picking up the pace, the Bank's balancesheet growth has started growing marginally above the industry compared to flattish numbers reported last year. Though the Bank's retail credit has shown the initial signs of revival, it has shifted significantly away from the unsecured retail credit. It has now built a strong CASA base of 40.7% in Q2FY13 from 28.7% in FY09.
Improved NIMs - To Sustain at Current Levels: NIMs for the bank has improved by 40bps over last three years to 3%, with push from domestic as well as international segment. Management has guided stable NIMs ahead. We believe with CASA at comfortable levels, it should not be very difficult for the Bank to maintain the NIMs at current levels.
Outlook & Valuation
At the CMP, the stock - after adjusting for subsidiaries - trades at 13.6x & 11.2x FY14E & FY15E earnings, and at 1.7x & 1.5x P/ABV FY14E & FY15E, respectively. Based on 15% premium to historical mean valuation gap to HDFC Bank implying 2x P/ABV FY15E for parent & Rs. 200 for its stake in subsidiaries, we reiterate our "BUY" recommendation on ICICI Bank with upwardly revised target price of Rs. 1,520 per share (from Rs. 1,155 earlier).
