Buy ICICI Bank; target of Rs 1360: Dolat Capital

Dolat Capital is bullish on ICICI Bank and has recommended buy rating on the stock with a target of Rs 1360 in its April 26, 2013 research report.

"ICICI Bank’s core operating performance was strong with stable asset quality and improvement in NIM. Fresh NPL formations declined moderately QoQ leading to the QoQ drop in gross NPLs. The increase in restructured loans by Rs  7.9bn was mostly in line with our expectation with total restructured loans at Rs  53bn (1.8 percent of total loans). As per the management further pipeline for restructuring is thin and asset quality should remain stable. The sharp 23bps QoQ improvement in NIM to 3.3 percent came as a positive surprise. The improvement in NIM was driven by the domestic NIM which rose to 3.7 percent, primarily due to reduction in the cost of funds. The bank targets 10bps improvement in NIM for FY14, which we believe is fairly achievable as the bank benefits from decline in bulk deposit rates (which forms 45 percent of total domestic term deposits)."

"Loan growth of 14 percent YoY was primarily driven by 18 percent growth in the domestic loan book which would be the main driver of loan growth over the next year as well. Retail loan growth is expected to witness steady improvement, driven primarily by the home loans and vehicle loans. New project loan demand is still subdued and most of the corporate loan demand is for working capital, which is expected to remain strong over the next few quarters."

"ICICI Bank has been over the past few quarters, showing an improvement in its core operating parameters including asset quality. We believe that the bank should be able to maintain its high NIM, as CASA remains stable and funding rates soften further. The pressure on NIM would only be seasonal and temporary in our view. Improvement in fee income should provide additional support to ROA over the next two years."

"We expect ICICI Bank’s asset quality to remain stable going forward and the credit cost assumptions over the next two years should adequately cover for any likely increase in restructured loan portfolio. With Tier 1 ratio of 12.8 percent, the bank is well placed to capitalize from the improving macro-economic environment over the next 2-3 years. We expect ROE on the banking business to improve steadily and touch 18 percent by FY15. Current valuation of 1.6x on FY14 banking BVPS attractive. ICICI Bank remains our top pick in the sector with SOTP based target price of Rs 1360,' says Dolat Capital research report. 

Institutional holding more than 40% in Indian cos

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