Buy ICICI Bank; target of Rs 389: KR Choksey

KR Choksey's research report on ICICI Bank

The bank reported reduced slippages of INR 41 bn during the quarter. Gross slippage of 3.3% was at a multi-quarter low. GNPA in % terms were 8.81%, down 3 bps sequentially while in absolute terms, stock of GNPA, at INR 535 bn, was down by ~INR 6 bn. Recoveries during the quarter were INR 20.4 bn. However, the bank also reported corporate and SME (BB and below) book of INR 246.3 bn vs. INR 133.7 bn in Q4FY18. Considering the sharp increase in stressed pool and 70% PCR target by FY20, credit costs are expected to stay elevated for the year. During the quarter, the bank reported credit costs of 3.4% and PCR (incl. technical write offs) of 66% (+560 bps qoq). Although the bank has guided for 15% ROE by FY20, we estimate it to be 12% on account of higher than expected provisioning. On the income front, the bank reported an NII of INR 61 bn, +9% yoy/+1% qoq. Blended NIM was 3.19%, positively impacted by a large NCLT recovery to an extent (domestic NIM at 3.54%, -13 bps qoq / international NIM at 30 bps, +26 bps qoq). Advances at INR 5163 bn grew 11% yoy/1% qoq led by 20% yoy growth in retail. Corporate growth ex-stress was 16%. The bank has guided for better credit growth for FY19/20, driven by retail push and lending to well-rated corporate. The bank continues to be well capitalized with CAR at 18.35%.

Outlook

Though we reduce our FY19/20E PAT estimates by 25%/4% on account of higher expected credit costs, we remain positive on the consolidated entity which offers a good opportunity to play the financialization theme. We estimate ROE of 6.5%/11.5% for FY19/20E. We value the entity on SOTP basis, valuing the bank at 1.8x FY20E ABV and adding INR 112 per share for the subs. Maintain BUY.