INSUBCONTINENT EXCLUSIVE:
Yes Securities has a buy call on ICICI Bank with a target price of Rs 483.
The current market price of ICICI Bank is Rs 354.50.
Time period
given by the brokerage is one year when ICICI Bank price can reach the defined target.
Investment rationale by the brokerage-Balance sheet
de-risking/strengthening continues and asset quality improves: It was a remarkable quarter for ICICI Bank with sustained progress in
retailization of assets, improvement in the risk profile of the corporate segment, further reduction in concentration risks, acceleration in
deposit growth, a sharp uptick in core PCR and material reduction in slippages and its source pool
Management commentary and disclosures suggest that return ratios could improve materially from FY20, driven by operating leverage and
moderation in credit cost
Bank’s domestic loan growth was healthy at 14.4 per cent yoy, predominantly fueled by a strong 21.6 per cent yoy growth in retail
Within retail loans, while mortgages continued its linear traction, business banking and unsecured credit grew at a robust pace on a benign
Though overall corporate credit was stable qoq; adjusting for the stressed loans, the portfolio grew by 10 per cent yoy primarily led by
The share of stressed sectors and borrower concentration further declined in Q3 FY19
The contribution of retail lending has now reached 67 per cent of the bank’s domestic loan book
A marked improvement in deposit growth was led by substantial 20 per cent yoy growth in non-CASA deposits
This led to CASA ratio moving down to 49 per cent, still amongst the highest in the industry.
Sequential NIM improvement was aided by the
collection of interest income from NPL accounts, both in domestic and overseas business
With nearly 70 per cent floating rate loans, NPL recoveries looking up and likely further reduction in the international loan share, the
outlook for margins is encouraging
NPL additions were lower from the Corporate and SME segments and principally from the BB Below rated pool
This portfolio has now declined to 2.8 per cent of bank’s customer assets (3.4 per cent in Q2 FY19), as it also witnessed significant
On the back of a recovery from a large NPL account (Rs21.5bn reflected in ARC sale), decrease in outstanding NPLs due to rupee appreciation
(Rs7.2bn), steady retail NPA recoveries and conservative provisioning (credit cost of 320 bps), the Net NPLs contracted by 26 per cent qoq
and the ratio fell to 2.6 per cent of customer assets
ICICI Bank’s core PCR improved 9.5ppt qoq to 68.4 per cent.
Ample room for incremental valuation re-rating: The strong capital position,
improving RoEs and a conducive operating environment can propel ICICI Bank’s loan growth in ensuing years
With a well-provisioned balance sheet, moderation in NPL accruals, headroom for cost leverage (targeting internal customers for retail loans
and acceleration in corporate growth) and the return of pricing power, the bank’s earnings will catapult over FY19-21
Our SOTP valuation suggests that stand-alone is trading at an undemanding valuation of 10x P/E and 1.4 P/ABV on FY21 estimates
It is our Top Pick amongst the corporate lenders.
