Edelweis's research report on ICICI Bank ICICI Bank’s Q2FY17 earnings were supported by gains from life insurance stake sale, which the bank used partially to strengthen its balance sheet. Slippages continued to be elevated (from watch list and outside it), a trend likely to sustain over the next couple of quarters. However, deleveraging initiatives by stretched corporate borrowers should augur well for the bank as resolution benefits are expected to play out in ensuing quarters. Management’s conscious stance to build retail-oriented business model continued to be on track (average CASA >41%, retail asset growth >20%, retail fees >10%). We believe, these are challenging times manifested in temporary lull in earnings. However, one must not ignore ICICI Bank’s sheer franchise strength, which will enable it to deliver healthy normalised returns post the turbulent phase. Maintain ‘BUY’.
In spite of stress, we maintain ‘BUY’ given: a) >25% of current price reflects stable value of subsidiaries; b) stable RoA and RoE (1.6%/13%, despite higher credit cost); and c) other operating parameters—CASA and retail assets—are improving consistently. The stock is trading at 1.3x FY16 P/BV. We maintain ‘BUY/SO’ with SoTP of INR 342.
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