Buy ICICI Bank; target Rs 1391: KRChoksey

KRChoksey's research report on ICICI Bank

"ICICI Bank reported good set of strong numbers with PAT of Rs2,304 crore, below with our expectation. NII grew healthier 22.5 percent y-o-y & 8.7 percent q-o-q aided by steady loan growth 14.4 percent y-o-y and sequential 26bps improvement in net interest margin. Fee income continued to be subdued; increased only 2.7 percent y-o-y due to slowdown in corporate banking fee income which was partially offset by good traction in granular fee income streams. Dividend from subsidiaries (Rs109 crore from ICICI Bank UK) continues to be healthy, boosting non interest income. Broadly asset quality has remained stable sequentially; the bank saw fresh slippages of Rs779 crore compared to Rs850 crore in Q3FY13 spread cross sectors and customer segments. Operating expenses rose 8.4 percent y-o-y & 6.5 percent q-o-q leading to cost to income ratio at 40 percent. Life insurance saw healthy business volume growth (18.6 percent y-o-y) with PAT of Rs354crore. General insurance continued to deliver positive net earnings of Rs27 crore. Consolidated PAT grew modestly 37.7 percent y-o-y supported by strong parent performance and steady earnings in life and Y-o-Y low base of general insurance business's earnings.

NII grew 22.5 percent y-o-y & 8.7 percent q-o-q aided by steady loan growth (14.4 percent y/y & 1.2 percent q/q) and improving NIMs (26bps Q-o-Q). Domestic NIM increased 23bps Q-o-Q to 3.70 percent while overseas NIM stood at 1.30 percent, Management expects oversea NIM to improve on deployment of excess liquidity in FY14. Management has articulated that the bank has addressed structural factors for lower NIM and now NIM would track operating business environment domestically. Management has guided 10bps NIM improvement in FY14 compared to 3.11 percent in FY13. Subdued fee income partially offset by control operating costs, resulting into pre provision profit growth at 15.8 percent y-o-y & 4.4 percent q-o-q during the quarter. Credit costs were at 66bps on Rs3700 crore fresh slippages and Rs1700 crore incremental restructuring in FY13. Management expects credit cost to increase from 66bps in FY13 to 75bps in FY14 given weak economy, stress in infrastructure and mid corporate segments. ROA will see improvement from 1.66 percent in FY13 to 1.7 percent- 1.8 percent in FY14 supported by NIM improvement, pick in fee income growth in double digit and slower OPEX growth.

Valuation & Recommendation: ICICI Bank has been delivering better numbers on improving operating performance and pick in business growth especially retail business in last few quarters. NIM expansion, pick in fee income growth, Improving ROA, well capitalized bank and Better operating performance from subsidiaries emerged key value drivers for the stock in medium term. At Rs 1144, the stock is trading at 14x FY14 earnings and 1.9x FY14 adjusted book, attractive valuation given the RoE improvement. We reiterate our buy rating on the stock with revised target price of Rs 1391, potential upside 21.6 percent," says KRChoksey research report.

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