Buy ICICI Bank; target of Rs 1325: PLilladher

Prabhudas Lilladher`s research report on ICICI Bank

"ICICI Bank's ~300bps ROE improvement over FY11-13 seems great in the context of slowing growth but ~35% of this improvement is not linked to operational improvement. Though we remain sanguine on FY13 margins and stable credit costs, expecting similar ROE tick-ups over FY13-15 in the context of end of earlier recurring losses + weak macros, will be optimistic. This will cap near-term re-rating and hence, near-term return expectations should be moderate. Our PT- Rs1,325/share (+10% upside).”

“PPOP/PAT growth of ~30% in FY13 was driven by a surprise in margins and end of recurring losses (Security receipt MTMs + securitization.  FY12 loss of Rs6bn v/s Rs0.2bn profit in FY13) + Rs2bn increase in sub. dividends. This contributed ~35% of the ~30% PAT growth and ~200bps ROE improvement in FY13. With end of recurring losses + lower fees/asset offsetting potential NIM tick-up, ROE improvement will now be contingent on improving growth prospects ICICI reported consol. ROEs of ~14.8% and mgt is targeting ~17-18% over the next 2-3 years.”

“We do expect consol. ROE to inch up to ~16% by FY15 factoring some improvement in subsidiary ROEs driven by general insurance and some capital repatriation from overseas subs. However, target of 17-18% looks optimistic and that is likely to restrict ST re-rating beyond 1.9-2.0x book,” says Prabhudas Lilladher research report. 

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