Buy ICICI Bank; target of Rs 338: HDFC Securities

HDFC Securities research report on ICICI Bank

ICICIBC’s 1Q performance was a tad disappointing on the core front, as NIMs dipped and growth slowed optically. While the slippages were lower (despite one large non-watchlist NPA) and the restructured book almost halved the net stressed assets were stable, as watchlist increased 7% QoQ. There were some positives, namely (1) ICICI created additional provisions of  Rs 1.6bn towards stressed sectors, (2) Retail traction continued (loans and  fees),  (3)  CASA ratio was healthy (4) Opex was contained and (5) PCR improved 160bps to ~55%.

Outlook

While the slippages were at a 7-quarter low, we believe bulky exposures will haunt ICICI in the near term. Our confidence in the long term is underpinned by gradual healing in the Corporate segment, monetisation in subsidiaries, healthy capital position and sustained build up in Retail franchise (asset, liability and fees). Further, current valuation (discount to peers) adds comfort. Maintain BUY with a revised SOTP of Rs 338 (1.9x FY19E core ABV of Rs 132 and sub-value of Rs 88/sh.