Published on 2/12/2019 4:18:04 PM | Source: HDFC Securities Ltd

Pick Of The Week : ICICI Bank Ltd - HDFC Securities

Posted in Broking Firm Views - Short Term Report| #ICICI Bank #Banking Sector #HDFC Securities #Trading Report

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Investment rationale:

* Transformation to a retail bank to support margins

* Moderation in slippages leading to improved asset quality

* Shift towards high rated and well-established corporates

* Second highest CASA Ratio among its peers

* NIMs to expand on back of growing retail franchise

* Comfortable capital adequacy ratio



* Slowdown in economic growth and lack of credit demand

* Deterioration in asset quality

* Competition from peers

* Slower growth in subsidiaries


Company profile:

ICICI Bank Ltd. (IBL) is the second largest private sector bank in India in terms of assets size and is designated as one of the Domestic Systemically Important Bank (D-SIB) in the country. The total balance sheet size of the bank on standalone basis stood at Rs 9,970bn as on Q2FY20. The ICICI Group has a unique franchise with a presence across customer segments, products and geographies, excellent technology capabilities and a diverse talent pool. The bank’s strong market leadership is complemented by its robust franchise of 5,228 branches and 15,159 ATMs as on September 30, 2019. The Bank also has wholly-owned subsidiaries in the United Kingdom and Canada with branches across both countries. Besides it has offices in other important countries of the world as well.


View and valuation:

IBL’s image has recovered after suffering from allegations about its previous CEO and sharp increase in NPAs until last year. The structural change in the bank’s Balance sheet (increasing retailisation) and P&L fortification (better margins, lower LLPs due to better coverage) appear to be sustainable and are likely to persist over the medium term. Improvement in corporate sector NPA due to resolution of stressed loans could mean higher than expected recoveries for the bank and addition to its profitability. The Government is taking measures to kick start the economic cycle and corporate lending is likely to pick-up as investment scenario improves.

With lower incremental slippages, improving loan growth, superior liability franchise and revival in core operating profit, we believe IBL is well positioned to tap the strong growth opportunities available in the banking space. Limited exposure to known stressed names gives us some comfort and we believe the worst in terms of asset quality is long past IBL.

We feel investors could buy the stock at the CMP and add on declines to Rs 460-465 band (1.85x FY21E Core ABV + subsidiaries value of Rs 135) for sequential targets of Rs 572 (2.45x FY21E Core ABV + subs value) and Rs 599 (2.6x FY21E Core ABV + subs value) in 4 quarters.


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