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Goldman Sachs sees 17% upside in ICICI Bank in next 12 months; retains buy

The global investment bank is of the view that ICICI Bank is an attractive corporate play at a reasonable valuation given that macro environment is turning a corner and earnings/returns visibility from FY19 is improving.

June 07, 2017 / 09:25 AM IST
 
 
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Goldman Sachs maintains a buy rating on ICICI Bank but raised its 12-month target price from Rs 320 earlier to Rs 372, which translates into an upside of 17 percent from current levels.

Since March quarter earnings, ICICI Bank has outpaced Bank Nifty by 13 ppt on lower NPL creation and a healthy operating performance.

“We believe ICICI Bank still trades at undemanding valuations and could rerate higher on: (1) moderating asset quality concerns; (2) strengthening of retail liability and asset franchise; and (3) improving returns ratio in FY19E-20E,” said the Goldman Sachs note.

The largest private sector bank will also benefit from a secular story of shifting household savings from deposits to insurance and mutual funds through its subs.

The global investment bank is of the view that ICICI Bank is an attractive corporate play at a reasonable valuation given that macro environment is turning a corner and earnings/returns visibility from FY19 is improving.

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The earnings are likely to improve from current levels based on moderating credit costs on abating B/S risk and on lower NPL creation in FY19-20E as a large part of the corporate stress has been recognised.

Given falling B/S risk and return on asset (ROAs) of 1.4-1.5 percent in FY19E-20E, ICICI Bank can trade at higher standalone valuations of 1.4X FY19E book or 11X FY19E EPS on our

3-stage P/E framework.

“We leave our estimates unchanged but raised our 12-m SOTP-based TP to Rs372 from Rs320 as we move standalone valuation to FY19E on better visibility and bake in higher subs. Valuations,” said the report.
first published: Jun 7, 2017 09:25 am

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