Buy ICICI Bank; target Rs 1387: KRChoksey

KRChoksey is bullish on ICICI Bank and has recommended buy rating on the stock with a target price of Rs 1387 in its February 02, 2013 research report.

"ICICI Bank reported strong set of numbers strong with PAT of Rs2,250 crore, in line with our expectation.  NII grew strongly 29% y-o-y & 3.8% q-o-q aided by steady loan growth 16.5% y-o-y and 7bps improvement in net interest margin. Fee income continued to be subdued; increased only 4.1% y-o-y due to slowdown in corporate banking fee income which was partially offset by good traction in granular fee income streams. Non interest was also boosted on account of dividend income from subsidiaries (Rs90 crore from ICICI Life) and higher trading gains (up 45.9% Q-o-Q). Broadly asset quality has remained stable sequentially; the bank saw fresh slippages of Rs850 crore compared to Rs1220 crore in Q2FY13 (largely on account of large media account). Cost to income improved 145bps Q-o-Q to 39.6%. Life insurance saw healthy business volume growth with PAT of Rs397crore. General insurance continued deliver positive net earnings of Rs95 crore. Consolidated PAT grew modestly 21.7% y-o-y supported by strong parent performance and steady earnings in life and general insurance business.

NII grew 29% y-o-y & 3.8% q-o-q driven by steady loan growth (16.5% y/y & 4.2% q/q) and improving NIMs (7bps Q-o-Q). Domestic NIM increased Q-o-Q to 3.47% while overseas NIM marginally increased 8bps to 1.30% on reduction in excess liquidity and large bond redemption. We believe NIM is likely to improve ~ 20bps in FY13 on the back of strong growth in retail advances (20% vs. 8% in FY12), decline in cost of deposits and slower asset re pricing.

Broadly asset quality has been fairly strong during the quarter as Net NPA ratio increased modestly 2.2% Q-o-Q. Provisions declined 27.4% Q-o-Q to Rs369 crore due to one off provision in Q2FY13. The bank has restructured loans amounting to Rs350 crore (0.1% of loan book) against Rs150crore (0.05% of loan book) loan restructuring in Q2FY13.Net restructured loans for the quarter stood at Rs 4169 cr.

Consolidated PAT grew strongly by 21.7% y-o-y to Rs 2645 cr from Rs2390 cr in Q2FY13 driven by strong PAT growth at parent level, steady earnings reported by life insurance and general insurance. Capital market linked businesses such as asset management, primary dealership and venture capital have also shown increment improvement both volume and earnings.

Valuation & Recommendation: ICICI Bank delivered strong earnings and performed well on most of operating parameters in tough quarter. Impressive NII growth, steady loan growth, stable asset quality, revival retail loan book growth and healthy avg CASA ratios were key positive highlights from the result. Healthy loan growth outlook, improving RoE, margins expansion, trend reversal in retail loan book growth, well capitalized bank and improving life insurance business emerged key value drivers for the stock. We have tweaked our FY13 & FY14 earnings estimates by 0.9% & 0.4%.  At Rs 1171, the stock is trading at 14x FY14 earnings and 2.0x FY14 adjusted book, attractive valuation given the RoE improvement. We reiterate our BUY rating on the stock with revised TP of Rs 1387," says KRChoksey research report.

Public holding more than 90% in Indian cos

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