Buy ICICI Bank; target of Rs 393: KR Choksey

KR Choksey's research report on ICICI Bank

Advances grew to INR 5123 bn, +10.4% yoy/1.4% qoq, primarily driven by retail exposure which grew 20.6% yoy/5.9% qoq. NII came at INR 60.2 bn, up 1% yoy/5.5% qoq. NIMs at 3.1% held stable qoq. The bank saw large one-off other income on account of stake sale in ICICI Securities (INR 33.2 bn) which were prudently used towards shoring up the PCR. Provisioning at INR 66.3 bn is up 1.3x yoy/86% qoq, translating into credit costs of >5% vs. 3% last quarter. Going forward, as the stress subsides, the bank has guided for normalized credit costs in the range of 80-100 bps. The bank reported a PAT of INR 10.2 bn (-50% yoy), largely weighed down by heavy provisioning expense.

Outlook

With the massive reduction in the drilldown list, the focus should now shift towards effecting recoveries from the NPA pool. Though quantum of unrecognised stress at INR 133.7 bn forms about 2.6% of the loans which will continue to be monitored. Increasing share of retail, shrinking the non-lucrative international book and resolution of NPAs should aid in NIMs recovery and subsiding of stress assets should translate into lower credit costs. We value the consolidated entity on SOTP basis, valuing the bank at 1.8x FY20E ABV and adding INR 113 per share for the subs. We recommend BUY.