sign in sign up
<<
Home , ICICI Bank

ICICI Near-term challenges emerge, but business franchise attractive Stock Update Stock

The recent Covid-19 outbreak (WHO has already declared it a Sector: & Finance pandemic) can lead to a possible global disruption in financial markets. Company Update Intuitively, we believe, the increasing clampdowns/voluntary social distancing would lead to reduced consumer mobility and deferral of Change spending. While some affected companies may initiate cost-curtailment measures, given the high fixed costs (rentals etc.), the pandemic is Reco: Buy  likely to impair their credit profiles.As per industry estimates, ’s CMP: Rs. 345 GDP growth could take a hit of 30-50 BPS due to disruptions caused by Covid-19 outbreak. While it is still early days, the initial signs indicate Price Target: Rs. 569 â that Covid-19 outbreak may result in higher delinquencies and lower á Upgrade No change â Downgrade credit off take for BFSI players, including ICICI Bank. So far,ICICI Bank  was progressing well on the recovery path, with improving asset quality as well as margins. While most slippages were from known corporate Company details additions (a broking company, fully provided and a South India-based Industrial company that was paying regularly), recoveries from a steel Market cap: Rs. 2,19,122 cr account and edible oils company indicated a positive trend. However, due to Covid-19 disruptions, we believe near-term financials and growth 52-week high/low: Rs. 552/323 outlook are likely to be impacted for the bank. Although the bank is well diversified (across segments and will benefit from lower cost of funds) NSE volume: (No of 181.1 lakh and adequately capitalised (CET-1 at 13.6%),demand recovery may get shares) prolonged due to disruptions caused by Covid-19 outbreak. We have BSE code: 532174 revised our estimates to factor in higher provisions and accordingly have adjusted the valuation multiples. We maintain our Buy recommendation NSE code: ICICIBANK with a revised price target of Rs. 569. Well-capitalised bank, standing steady on CASA deposits: In the present code: ICICIBANK scenarioas well as for the long term, we believe the bank’s strong liability profile dominated by CASA deposits is a strong cushion for its profitability Free float: (No of 646.0 cr and margins. Even though low-cost CASA deposits rose at a slower pace shares) at 13% y-o-y in Q3FY2020. CASA ratio at 47% is healthy and remains the second highest among large banks. Moreover, the bank is well capitalised as its CAR stands at 16.5% in Q3 with CET1 at 13.6%. Peer group banks Shareholding (%) have indicated that so far their retail asset quality has been stable, but consumer spending has declined. Promoters 0.0 Our Call FII 45.8 We value ICICI Bank by our sum-of-the-parts (SOTP) methodology, where we value the standalone bank at ~2x its FY2022E BV and rest of the DII 41.1 subsidiaries at ~Rs.142 per share. We believe valuations are reasonable, considering the overall franchise value as a whole and strong capitalisation Others 13.1 and a high provision coverage ratio (PCR)are comfort factors. However, for the near term, we believe the impact of Covid-19 pandemic may prolong demand recovery and earnings normalisation phase. Hence, we have Price chart accordingly fine-tuned our estimates. We maintain our Buy rating on the 600 stock with arevised price target of Rs.569. 500 Key Risks 400 A slowdown in consumer spending and higher slippages due to Covid-19 300 along with slippage from the corporate book (especially from BB and below-rated portfolio) could impact earnings outlook. 200 19 19 20 19 - - - - Jul Nov Mar Mar Valuation Rs cr Particulars FY19 FY20E FY21E FY22E Price performance Net Interest Income (NII) 27014.8 30811.7 36739.3 42345.2 Net profit (Rs. cr) 2970.8 9263.2 17316.1 21599.1 (%) 1m 3m 6m 12m EPS (Rs.) 4.6 14.4 26.9 33.6 P/E (x) 73.4 23.5 12.6 10.1 Absolute -37.9 -37.3 -12.4 -14.8 BVPS (Rs.) 163.0 173.3 191.0 213.3 Relative to P/BV (x) 2.1 2.0 1.8 1.6 -9.4 -7.9 11.4 14.2 Sensex RoE (%) 2.8% 8.3% 14.3% 16.2% RoA (%) 0.3% 0.9% 1.4% 1.4% Sharekhan Research, Bloomberg Source: Company; Sharekhan estimates

March 20, 2020 2 March 20, 2020 rated A-and above which again is a positive indicator. apositive is again above which A-and rated corporatesto was portfolio corporateinternational and domestic the FY2020in 9M in disbursements the of ~90% Also, FY2020. Q3 of end at 69.8% to FY16 in 51.9% from increased have ratings) (internal above and A- rated Loans The improving. consistently been has quality book loan overall the above, chart the in seen As to near-termbalance challenges. counter a be thus, should, which waslow, (2.7%) power and (2.6%), (1.7%),construction telecom as such loans total to sectors stress of share the Q3, During challenges. induced Covid-19 by impacted gets economy the as manifest, to likely also is costs provision in rise therefore, and, loans stressed in rise believe we forward, coming down we to 1.4% of same.While loans were from 5.2% companies a the year ago below-rated and GNPAs from and the reflect retail BB book of were to share stable at going ~2%, namely estimates indicators positive Q3FY2020, our till revised that acknowledge accordingly have quality we asset and its view, on our risk in the said, increased, That has witnessed. been not now till have closures widespread business as and book, joblosses corporate than better marginally fare to likely is believe we which (~63% share book), retail loan high the of a has Bank ICICI environment. economic changed the to due mainly FY2021E and Credit cost forecast revised due to near term challenges: Source: SharekhanResearch Improving ratingprofileofoverallloanbooksofar 51.9% FY16 56.2% A -&aboveas%oftotalloanbook FY17 62.5% FY18

67.1% FY19 We have revised our credit cost forecast in FY2020E Q2FY20 66.3% Q3FY20 69.8% 3

Stock Update Source: SharekhanResearch of target Rs.569. price arevised with on stock the rating Buy our maintain We estimates. our fine-tuned accordingly have we Hence, phase. normalisation for the near term, we believe the impact of Covid-19 pandemicoverall mayfranchise value as and a However,a prolongwhole, which high capitalisation are strong PCR, factors. comfort demand the considering recovery reasonable, are valuations believe We andFY2022E share. earnings per ~Rs.142its at ~2x subsidiaries the at of rest bank and BV standalone the value we where methodology, SOTP our by Bank ICICI value We Valuation to term. long medium the in attractive is it believe and potential re-rating strong a has bank the find We value. add subsidiaries well-performing Moreover,its share. market gain to positioned well is and reach good franchisee with credit is Bank an attractive near in term and the higher ICICI credit for costs bank. the growth on impact some be may there believe we Therefore, profiles. credit their impair to likely is pandemic measures, given the high fixedcompanies may etc.), (rentals costs cost-curtailment initiate some the affected clamp increasing believe, we socialwould distancing intuitively, downs/voluntary lead to reduced consumerand deferral mobility ofWhile spending. days, early its in still is it While behaviour. consumer and financial markets in disruption global and a recovery causing pandemicis the The believe delayed. be we to likely Covid-19, is ofprofitability in improvement pandemic the to due However, quality. asset in trend improving an displaying far so is and capitalisation strong with franchise business strong a be to continues Bank ICICI Outlook March 20, 2020 One-year forwardP/BV (x)band Source: Company, Sharekhanresearch HDFC Bank ICICI Bank Particulars Peer Comparison Source: Company,Sharekhanresearch SOTP Valuation (Rs. per share) Rest Broking business General InsuranceSubsidiary Life InsuranceSubsidiary Non BankingSubsidiaryValuation Value ofStandalone ICICIBank Particulars ICICI BankSOTP valuation 0.8 0.8 2.4 3.2 1.6 1.6 -

Mar-14 Rs/Share CMP 425 345 881 Mar-15 PBV FY20E 2.8 2.0 P/BV(x) 1.4

Mar-16 ICICI BankHolding FY21E 2.5 +1 sd +1 1.2 1.8 FY20E 52.9% 56.8% 79.2% 23.9 18.0 19.9 P/E(x)

Mar-17 3 - yr Avg yr FY21E 12.8 14.6 8.9 569 63 427 43 27 10 Value/share

FY20E Mar-18 RoA (%) Rs. 0.9 2.0 0.7 - 1 sd FY21E 20% HoldingDiscounttoMcap 1.4 1.4 2.1

Valuation Methodology Mar-19 FY20E 2.0x FY22EBVPS 16.7 25x FY22EPAT RoE (%) 8.3 7.8 2.4x EVFY22E FY21E 14.5 14.3 Mar-20 18.1

4

Stock Update March 20, 2020 Key management personnel Data Additional Top shareholders 10 A slowdown in consumer spending and higher slippages due to Covid-19 along with slippage from the the from slippage with along Covid-19 to due outlook. earnings could impact slippages portfolio) below-rated and BB from (especially book corporate higher and spending consumer in slowdown A Key Risks expansion. to ROE/ROA aid further be from in reduction competitive intensity from and NBFCs recoveries/ resolutions from NCLT etc accounts would not only its balance de-risked sheet but also enhanced the franchise value. The bank is well placed to benefit mix its portfolio towards retail (granular) and higher-rated corporate going loans, and hence, but in last four bank years, it has the for improveto continued has It peaked elongated.. be to likely recovery is the has pandemic, the to due risks some cycle forward, NPA corporate the believe We parent. the for obligations sheet balance leaner with along unlocking value in resulted also has it created, value the demonstrates only the not over business Securities , Banking, of consisting Since years. fiscalthe 2016, bank has unlocked franchise more than Rs. crore 14,000 of capital in which its subsidiaries, attractive an built has bank The theme Investment which above, and A- book. overall loan of the rated de-risking helps customers to are disbursed loans corporate of proportion high increasingly an the balance sheet. Hence, today of the proportion retail loans mix in has the increased portfolio to 62%, while progress in de-risking towards mix significant retail made and has loans corporate and higher-rated portfolio a as General well developing Insurance, are Life and fields, strong franchise, in and to provide support overall value. respective In its banking business, It has subsidiaries, continued totheir improve the in It entities presence. strong all India are broking pan stock a and Insurance having size, book loan of terms in bank sector private largest 2nd the is It companies. group its through and channels delivery of variety a through customers retail and corporate to services financial and products banking of range wide a offers Bank ICICI company About Source: Bloomberg Source: Bloomberg Anup Bagchi Vishakha VMulye Rakesh Jha Sr. No. 10 9 6 5 2 8 4 3 7 1 Sharekhan Limited,itsanalystor dependant(s) oftheanalystmightbeholdingorhavingaposition in thecompaniesmentionedarticle. Life InsuranceCorpofIndia Holder Name Aditya BirlaSunLifeTrustee CoP Capital GroupCosInc/The BlackRock Inc ICICI PrudentialAssetManagement SBI FundsManagementPvtLtd HDFC AssetManagementCoLtd Dodge &Cox HDFC Trustee CoLtd/India Franklin Resources Inc Executive Director Executive Director Chief FinancialOfficer CEO/Managing Director

Holding (%) 2.5 2.0 3.5 3.5 2.3 3.8 4.0 7.9 1.8 2.1 5

Stock Update Know more about our products and services

For Private Circulation only

Disclaimer: This document has been prepared by Sharekhan Ltd. (SHAREKHAN) and is intended for use only by the person or entity to which it is addressed to. This Document may contain confidential and/or privileged material and is not for any type of circulation and any review, retransmission, or any other use is strictly prohibited. This Document is subject to changes without prior notice. This document does not constitute an offer to sell or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. Though disseminated to all customers who are due to receive the same, not all customers may receive this report at the same time. SHAREKHAN will not treat recipients as customers by virtue of their receiving this report. The information contained herein is obtained from publicly available data or other sources believed to be reliable and SHAREKHAN has not independently verified the accuracy and completeness of the said data and hence it should not be relied upon as such. While we would endeavour to update the information herein on reasonable basis, SHAREKHAN, its subsidiaries and associated companies, their directors and employees (“SHAREKHAN and affiliates”) are under no obligation to update or keep the information current. Also, there may be regulatory, compliance, or other reasons that may prevent SHAREKHAN and affiliates from doing so. This document is prepared for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Recipients of this report should also be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The user assumes the entire risk of any use made of this information. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. We do not undertake to advise you as to any change of our views. Affiliates of Sharekhan may have issued other reports that are inconsistent with and reach different conclusions from the information presented in this report. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject SHAREKHAN and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. The analyst certifies that the analyst has not dealt or traded directly or indirectly in securities of the company and that all of the views expressed in this document accurately reflect his or her personal views about the subject company or companies and its or their securities and do not necessarily reflect those of SHAREKHAN. The analyst further certifies that neither he or its associates or his relatives has any direct or indirect financial interest nor have actual or beneficial ownership of 1% or more in the securities of the company at the end of the month immediately preceding the date of publication of the research report nor have any material conflict of interest nor has served as officer, director or employee or engaged in market making activity of the company. Further, the analyst has also not been a part of the team which has managed or co-managed the public offerings of the company and no part of the analyst’s compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this document. Sharekhan Limited or its associates or analysts have not received any compensation for , merchant banking, brokerage services or any compensation or other benefits from the subject company or from third party in the past twelve months in connection with the research report. Either SHAREKHAN or its affiliates or its directors or employees / representatives / clients or their relatives may have position(s), make market, act as principal or engage in transactions of purchase or sell of securities, from time to time or may be materially interested in any of the securities or related securities referred to in this report and they may have used the information set forth herein before publication. SHAREKHAN may from time to time solicit from, or perform investment banking, or other services for, any company mentioned herein. Without limiting any of the foregoing, in no event shall SHAREKHAN, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind.

Compliance Officer: Mr. Joby John Meledan; Tel: 022-61150000; email id: [email protected]; For any queries or grievances kindly email [email protected] or contact: [email protected]

Registered Office: Sharekhan Limited, 10th Floor, Beta Building, Lodha iThink Techno Campus, Off. JVLR, Opp. Kanjurmarg Railway Station, Kanjurmarg (East), – 400042, . Tel: 022 - 61150000. Sharekhan Ltd.: SEBI Regn. Nos.: BSE / NSE / MSEI (CASH / F&O / CD) / MCX - : INZ000171337; DP: NSDL/CDSL-IN-DP-365-2018; PMS: INP000005786; : ARN 20669; Research Analyst: INH000006183;

Disclaimer: Client should read the Risk Disclosure Document issued by SEBI & relevant exchanges and the T&C on www.sharekhan.com; Investment in securities market are subject to market risks, read all the related documents carefully before investing.