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%.
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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