Hold PFS; target of Rs 37: ICICI Direct

Post steady asset quality in the previous three quarters, higher slippages disappointed at Rs 235 crore in Q1FY7. In Q1FY17, three loan accounts with aggregate exposure of Rs 235 crore slipped into NPA. Consequently, GNPA increased from Rs 293.7 crore in Q4FY16 to Rs 528.9 crore. GNPA ratio, therefore, rose 2.43% QoQ at 5.83% PAT came in at Rs 67.4 crore, broadly in line with our estimate, owing to lower NII at Rs 99.4 crore, offset by lower provision at Rs 2.2 crore NII came in flat at Rs 99.4 crore, below our estimate, led by margin erosion. NIM came in at 4.62%, down 185 bps, owing to interest reversal from higher slippages during the quarter Advances grew 38% YoY at Rs 9074 crore, led by 52% YoY growth in renewable segment, increasing its contribution to 46% of book.

With large growth opportunities in renewable energy project financing and PFS niche position, RoA, RoE still remain healthy and are expected at 3.0%, 15.3% in FY18E, respectively, aided by double digit PAT growth. With increased competition from banking peers, marginal pressure is anticipated on NIM. Given the current business environment plagued by a slowdown in investment activity and asset quality issues impacting financial institution (spike in NPA witnessed in Q1FY17), we revise our target multiple downwards at 1.1x FY18E ABV (earlier 1.15x) at Rs 33.8. Consequently, we revise our target price lower from Rs 43 to Rs 37 per share and, hence, maintain our HOLD rating on the stock.  For all recommendations, click hereDisclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.