Buy ICICI Bank; target of Rs 340: JM Financial
JM Financial’s research report on ICICI Bank
We met ICICI Bank’s management recently and maintain a positive stance at current valuations. Key takeaways from the meeting: a) overall potential stress for the bank is <INR 270bn (5.5% of advances) including drilldown list (INR 196bn), restructured book (c. INR 23bn), non – funded exposure to existing NPLs (c. INR 21bn) and unique exposures to SDR, 5 – 25 etc. (c. INR 30bn). b) Exposure to developer book has been coming off as bank is approaching this space cautiously. c) While management is confident on retail loan growth, even the good portion of corporate book continues to grow at mid – teen level s. We remain constructive on ICICIBC and believe that our combined credit cost assumption of INR 216bn over 2H FY18 /FY 19E and the 12% hit on the book value on account of future haircuts on accounts under other forbearances (SDR, S4A, 5 – 25, restructured) sufficiently accomodates the stress on ICICIBC’s book .
We value the parent at 1.7x FY19E fully adjusted BVPS, implying standalone value of INR 253 and subsidiaries’ value of INR 87, implying 12M TP of INR 340.
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