We upgrade ICICI Bank to ?buy? with a target of R1,390. Healthy Tier 1 ratio and capital repatriation from foreign subsidiaries will stabilise NIM at current levels. Loan growth especially in retail assets is coming back driving both NII and fee income. RoE should, therefore, improve over time. Some asset quality pressure is visible but it won?t restrict profit growth. Returns should be relatively better than the sector.
ICICI Bank is likely to deliver better returns relative to the sector over the medium term. While management?s discussion of asset quality worries from mid-corporates is concerning, we believe the bank will tide over the problem with credit cost not exceeding 100bps in FY15-16. The bank should be able to maintain NIMs at current levels driven by branch expansion, focus on retail assets and ability to maintain Casa around 42-44%. With loan growth coming back, fee income should also pick up over FY14-16. Standalone RoE should progressively inch closer to 14.7% by FY16 from 12.9% in FY13. We expect RoE to improve to 15.5% by FY16 from 14.7% in FY13. The increase will be gradual as large capital is locked in the UK/Canada subsidiary.
Jefferies
