Accumulate ICICI Bank; target of Rs 298: Prabhudas Lilladher

Prabhudas Lilladher's research report on ICICI Bank

ICICIBC reported a weak 2QFY17 operating performance though the net earning beat estimates on capital gains from IPRU life stake sale. Adjusting to onetime gains, core performance continued to remain weak with flat NII growth (which included onetime interest refund on IT), sluggish fees income and slight increase in opex. Asset quality continued to deteriorate with high slippages with eighty percent of which came in from watch list and restructured book. Watch list book decreased sequentially on some repayments and recognition. Bank continues to guide elevated slippages for next few quarters, but also expects watch list to move down sharply on resolutions. The refusal of the management to give any colour on their SMA1 and SMA2 outstanding was a disappointment. We have fine‐tuned our earnings for pressure in margins and increased credit cost, but offset by higher capital gains and lower tax rate to 20% from 30%. We maintain Accumulate with revised PT of Rs 298 (from Rs 262) as we lower our CoE assumption and increase our ICICI Pru Life valuations to appraisal value of Rs 380 bn from Rs 320 bn for FY18E.

Management guided that the incremental large chunk of the assets could slip from the watch list and the restructured book in next 1 or 2 quarters, which will keep credit cost high, but refrained from giving any concrete credit cost guidance.