Buy ICICI Bank, target Rs 1200: CLSA

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Buy ICICI Bank, target Rs 1200: CLSA

CLSA research is bullish on ICICI Bank and has maintained buy rating on stock and expects a target price of Rs 1200.

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CLSA research is bullish on ICICI Bank and has maintained buy rating on stock and expects a target price of Rs 1200.

CLSA research report on ICICI Bank

The Foreign Investment Promotion Board (FIPB) cleared a proposal by ICICI to divest 24% stake in ICICI Financial services (IFS) to foreign institutional investors. ICICI Bank has received expression of interest from five investors to buy 5.9% of equity in IFS for USD650mn, valuing IFS at USD10.4billion (pre money). At these valuations, adjusting for value of subsidiaries (IFS and 2 other subs), ICICI Bank is trading at 1.0x FY 09CL adj book with ROE of 13%. Re-iterate BUY, price target Rs1,200. FIPB clears ICICI Bank's divestment proposal in IFS The Foreign Investment Promotion Board on Friday cleared a proposal by ICICI Bank to divest 24 per cent stake in ICICI Financial Services in favour of foreign players. IFS is the bank's holding firm for its stake in ICICI Prudential Life Insurance (74% stake), ICICI Lombard General Insurance (74%) and ICICI Prudential Asset Management (51%). The divestment is however subject to further approvals from Reserve bank of India (RBI) and the Finance ministry.

IFS is valued at USD10.4billion

Five firms, including Goldman Sachs, had earlier this year expressed their interest in acquiring 5.9% stake in IFS for USD650mn, valuing the company at USD10.4billion (pre-money), i.e. Rs380/share of ICICI bank, which is c.30% higher than our valuations for IFS. The approval also lays a roadmap for listing of the holding company which may happen in the next 9-12 months.

ICICI Bank is a direct play on Indian economy

We believe ICICI Bank is a direct play on Indian economy given its dominant presence in financial services sector. It is the largest retail bank in India and is also likely to be a prime beneficiary of rising infrastructure credit demand (due to its strong project financing expertise). It is India's largest insurance company (life and general) and is one of the largest asset managers in India.

At 1.0x FY09CL Adj. Book, it is cheaper than government banks

At the above mentioned benchmark valuations, total value of ICICI Bank's subsidiaries is estimated at USD11.4billion i.e. Rs421/share (25% higher than our estimates). Adjusting for the value of subsidiaries, ICICI Bank is trading at 1.0x FY09CL adj. book, 5-10% lower than multiples of few government banks. ICICI Bank's reported ROE in FY09CL would be c.13% (subdued due to bank's recent equity issuance); however on a steady state the bank can deliver ROE of 16-17%. Maintain BUY with a price target of Rs1,200.