ICICI bank CEO Ms Chanda Kochar has assured about the asset quality & earnings of the bank which were key investors issue and maybe better than expected.
A sustained demonstration by the bank in managing the credit cycle and high visibility in earnings growth (+20%) can lead to a re-rating of the stock. Further, its high Tier I capital also makes it better positioned to manage potential regulatory changes. We think the stock can re-rate to 2.0x (Bk biz.) one year forward (FY13) multiple. This is a ~10% premium to its average historical multiple over last 6-yr period; but still at 20-60% discount to many peers. It's our top pick in the sector.
The most positive takeaway from the meeting was the enhanced comfort on asset quality. Consistent with past guidance, Ms. Kochhar was confident that slippages may trend down in FY13 and the worst may be behind. Further, it was reiterated that restructured loans may also not see a marked rise.
Earnings growth to sustain at +23/21% through FY13/14E led by 1) 15-17% loan growth driven by retail loans. Merrill has a target of Rs 1200 on the Stock of ICICI Bank.
