ICICI at 22-month low post Q3: Will analysts re-rate stock now?

Moneycontrol Bureau Toppling over disappointing December quarter earnings, shares of ICICI Bank are bleeding. Shares of the private lender fell over 7 percent, touching 22-month low at Rs 216 per share on Friday. Higher provisions and significant asset quality weakness are worrying analysts. Does it call for a re-rating? Most analysts still have a bullish stance on the private lender and find the stock at an attractive value. CLSA maintains buy rating with a target of Rs 320 per share stating that credit costs drove earnings cut but valuations are attractive. The brokerage has reduced earnings forecasts for FY17-18 by 7-10 percent considering higher credit costs and states upside could arise from profit on sale of stakes in subsidiaries. It says that valuations are at a discount to peers and there is a scope for re-rating as concerns on asset quality abate. CLSA is happy to to see healthy 18 percent growth in Casa deposits to 45 percent of total deposits. "While savings deposits rose 15 percent YoY, current deposits growth may be volatile. Bank’s healthy growth in Casa deposits will help it to gain share in loans without compromising on NIM. Fee growth, however, remains sluggish, reflecting stagnant corporate business," it says in a note. Bank of America Merill Lynch still has a buy rating but have lowered target price to Rs 315 and earnings per share  (EPS) by 2/12 percent for FY16/17, factoring in higher credit costs. It says operationally, loan growth, margins, CASA and fee continue to do well. ICICI got gains from 4 percent stake sale in life business, which it used to make higher provisions, says BoAML. Morgan Stanley continues to have overweight rating but with a reduced target of Rs 247 per share and reduced earnings forecast, given higher credit costs, lower margins and fees. It says that while absolute performance will struggle till non-performing loans (NPL's) are behind, it should perform better than industry average. It expects credit cost to remain elevated at 300 basis points (bps) in Q4FY16 and the capital gains from another 2 percent stake in ICICI life and 9 percent stake sale in general insurance will provide some offset.Macquarie remains neutral on the stock with a target price of Rs 252 per share. "Our estimates already factor in haircuts of Rs 13000 crore on restructured and large corporate exposure over FY17, and thus believe upside risk to our write-off estimates are relatively low. Under the RBI’s directive ICICI Bank will be required to make provisions of Rs 350 crore for restructured assets worth Rs 3500 crore in FY17," it adds.At 12:14 hrs ICICI Bank was quoting at Rs 224.25, down Rs 8.70, or 3.73 percent on the BSE.

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