Buy ICICI Bank; target of Rs 360: Edelweiss

Edelweiss' research report on ICICI Bank

ICICI Bank reported a mixed Q1FY19 performance—while core was steady (PPOP grew 9% YoY), higher provisions (rise in coverage and MTM losses) and lower treasury led to the loss of INR1.2bn. Slippages were restricted to 3%, but the bank – factoring in the entire SME and corporate book – disclosed BB and below-rated portfolio of INR246bn (4.8%) versus INR134bn in FY18. A higher-than-expected potential stress pool along with targeted coverage of 70% will lead to upfronting of credit cost. Thus, we prune our FY19E EPS by 28% while FY20E earnings remain broadly steady.

Outlook

In terms of quality, the bank has been cautiously de-risking its balance sheet, which coupled with robust retail segment and upfront credit cost will drive >15% RoE by FY20. As adjusted BV gets revised by 3%, we are revising the TP to INR360 (from INR 370); maintain ‘BUY’. Clarity on management changes and outcome of investigations are the key variables.