Apr 30, 2012, 12.38 PM IST
ICICI Bank declared its fourth quarter results. Rajiv Mehta, IT analyst of IIFL India says, there is a case for urgent re-rating of ICICI Bank. "It remains our top pick in the sector. Our target price is Rs 1,200," he adds.
In an interview to CNBC-TV18, Rajiv Mehta, IT analyst of IIFL India says, there is a case for urgent re-rating of ICICI Bank, given the fact that it's trading at significant discount to HDFC Bank and even a peer like Axis Bank . "It remains our top pick in the sector. Our target price is Rs 1,200," he adds.
Below is the edited transcript of his interview with CNBC-TV18's Mitali Mukherjee and Sonia Shenoy. Also watch the accompanying video.
Q: Analysts on the street believe that there is now enough justification to the numbers to deserve a re-rating on ICICI Bank. What is your target price on ICICI Bank and how did you read into the numbers after they came out?
A: Absolutely. I agree with most of my colleagues that there is a case for urgent re-rating of the stock, given the fact that it’s trading at significant discount to HDFC Bank and even a peer like Axis Bank. The kind of performance the bank has been consistently delivering over the last three-four quarters is heartening.
This quarter was special in the sense that they beat everybody’s estimate. Two things stood out. One, a significant net interest margin (NIM) expansion sequentially which is more structural in nature, there is no one-off in that. That should continue overall in the next year. Second, asset quality continues to behave very well. So, even I agree that in the near-term, the valuation should re-rate. It remains our top pick in the sector. Our target price is Rs 1,200.
Q: It's not the first quarter though. For three quarters now, there has been a lead and lag kind of relationship between what analysts expect of ICICI Bank and what they actually go onto deliver. What do you think is a more reasonable valuation on a price-to-book basis that should be accorded to the bank now?
A: I think on a price-to-book basis a justifiable band could be between two to two-and-a-half one year forward rolling price-to-book. Currently, it is at significant discount to it. I think to a large part what has been dampening the valuation is that at the macro level we are not seeing the kind of improvement which we thought before.
As compared to HDFC Bank, it is slightly high-beta stock. So, if we see some improvements happening in terms of reforms with respect to infra, power or any other sectors then I think ICICI Bank should run up much more faster as compared to HDFC Bank.
Q: What about Axis Bank? What did you read into those numbers?
A: Yes, pretty good numbers. No major negatives into that. Again the asset quality was the key highlight because everybody was watching asset quality of these two banks, Axis and ICICI. They have been beating estimates on that.
What is more important is that they are not even reporting stable asset quality, but they are rather improving ratios. That is why both the banks have guided for a more or less stable credit cost for the next year. So, if one tries to factor in then obviously your earnings will go more upwards for the next couple of years.
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