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Jul 19, 2011, 07.13 PM IST | Source: CNBC-TV18

Credit Suisse downgrades ICICI Bank to 'neutral'

Credit Suisse has recently downgraded ICICI Bank’s stock to neutral from outperform, with a target price of Rs 1066, cutting their FY13 earnings forecast by 10%.

Credit Suisse has recently downgraded ICICI Bank ’s stock to neutral from outperform, with a target price of Rs 1066, cutting their FY13 earnings forecast by 10%. Also, with the credit cost bottoming out, Suisse expects ICICI Bank’s return of assets and return on equity to stagnate.

Their key concern has been the growth of ICICI’s corporate book. Over the last few years, ICICI has been transforming into a corporate lender versus being primarily a retail lender. Currently, over 80% of their total credit exposure is in the corporate segment versus 60% in March of 2008. In FY11, ICICI’s corporate loan book grew a staggering 41% versus 8% for non-corporate loans.

Another key concern is the growth of the bank’s commercial real estate loans, standing at 86% year on year, is the highest in the banking sector. Currently, real estate loans’ share is 12% of their total loan book and 46% of their net worth. Also, loans to the power sector are up by 69%, constituting 34% of their net worth.

Due to the perceived problems, Suisse has cut their FY12 expected EPS by 7%, net interest margins by 5 basis points (2.7% in FY11) and increased their credit cost assumptions by 5 basis points.

Therefore, Credit Suisse has pegged ICICI Bank core bank valuations at two times book value.

For full details, watch the accompanying video.

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