Buy ICICI Bank; target of Rs 410: JM Financial

JM Financial's research report on ICICI Bank

ICICI Bank reported a net loss of INR 1.1bn in 1QFY19, against our estimates of INR 16.8bn of profit as management opted to increase provision coverage on NPLs by c.640bps to 54.8% (provisions of INR20.4bn above estimates). ICICI Bank also disclosed Rs246bn of BB&below exposures in the loan book, which comprise of ~INR125bn of loans that were part of the earlier disclosed drilldown list, restructured loans as well as loans under various dispensations. The new disclosures, worth Rs121bn, are exposures to non-stressed sectors and more granular in nature. As a result, we do no expect significant changes to our provisioning estimates for FY19-20. Given the upfronting of provisions, the haircuts to networth in our estimates are now flowing through P&L and result in earnings cut of 35% / 12% to our FY19E / FY20E earnings.

Outlook

As there is a proportionate reduction on the networth hit, our fully adj.BVPS for FY20E remains unchanged. We build slippages of INR 325.7bn and provisions of INR 222.4bn over FY19-20E which adequately provides for the stress. We maintain our positive stance on ICICI Bank given inexpensive valuations.