Citi Downgrades ICICI Target Price

Citigroup in a report released just minutes ago has downgraded the Target Price set on ICICI Bank because of lack of direction and decision. There was almost no growth in the quarter – disappointing, but very acceptable in challenging times.P&L has done well – employee cost control with suggestions of more, fee growth acceleration to 35%+, and continued trading gains. These could provide significant earnings leverage. However, margins – the big P&L lever and hope – disappoint, with only limited expansion; outlook too appears a little muted.

Pain on international (doubling of provisions/write-downs) and on consumer book (higher deterioration and provisioning) – but probably along expected lines. Is the worst over? Too early to call, but consumer likely the bigger risk.

Citi’s target price of Rs1185 (previously Rs1510) is based on our EVA model. Target price incorporates Rs337 (previously Rs386) for its securities unit. In addition, we factor in Rs337 as the value of its subsidiaries – specifically, these are; Life insurance Business at Rs246 per share (18x FY09E NBAP), General Insurance at Rs20per share (20x FY09E PE), AMC at Rs17 per Share (6% of AUM), ICICI securities at Rs39 per Share (15x FY09E), Venture Fund at Rs15per share (15% of FY09E AUM). ICICI Bank is expected to report an EPS of Rs 43 for Fy2009.