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Rpt. 13267742 19-Mar-2008
ICICI BANK JEFFERIES & COMPANY, INC. - CHATTERJEE, ANINDYA
Rpt. 13260434 17-Mar-2008
ICICI BANK EDELWEISS CAPITAL LIMITED - GOYAL, VISHAL, ET AL
9 - 12
Rpt. 13243991 13-Mar-2008
ICICI BANK - INITIATING COVERAGE BNP PARIBAS SECURITIES (ASIA) - SARATHI, VIJAY, ET AL
13 - 40
These reports were compiled using a product of Thomson Financial.
March 19, 2008 Financial Services Consumer Finance India
ICICI Bank (NYSE: IBN)
Huge Investment Provisioning to Hurt Earnings: Downgrade to Underperform
IBN's (Marked-to-Market) MTM losses must have widened sharply in Feb./Mar., and we see little respite ahead amid continuing negative global headwinds. ICICI bank's management last week clarified that the bank had US$2.2bn overseas CDO exposure, and that the MTM losses were at US$264mn as of Jan. 31, 2008.
UNDERPERFORM BUY $39.56 $29.00 $87.00 2:1 NYSE: IBN
Rating Change Price Target Change Estimate Change
Rating: Previous: Price: Price Target: Previous: ADR Ratio: Bloomberg:
We are downgrading IBN to Underperform with a revised price target of US$29/ADR (INR590/local share). We expect ICICI bank's 4QFY2008 earnings to disappoint the market with a 97% YoY, and 98% sequential (QoQ) decline in profits, due to significant MTM deterioration of its overseas investment portfolio.
• ICICI Bank along with its subsidiaries has significantly increased balance sheet exposure to global financial markets. On a standalone basis - market-linked global credit exposures top 8.4% of the bank's total investment book - significantly changing the bank's risk profile and balance sheet character from previous years when such exposures were negligible, in our view. • ICICI Bank may need to provide more than US$300mn in MTM losses on its US$2.2bn CDO/CDS/CLS exposures in 4QFY2008, in our view, over and above the US$264mn loss provisions already announced earlier this month. • The bank has around US$600mn CDO exposure and around US$1.6bn exposure in credit derivatives. Two-thirds of the underlying securities comprise of overseas bonds of Indian companies. The remaining one-third underlying exposure is on US and EU investment grade corporate bonds. • Our estimates conservatively incorporate the significant value erosion in global credit markets in Feb./Mar. 2008, and the deterioration in credit market liquidity with widespread rise in risk aversion. • Further, the bank's UK and Canada subsidiaries have more than $4bn combined exposure in Asset Backed Securities (ABS), Prime Mortgage Backed Securities (MBS), Asset Backed Commercial Papers, etc. Losses and provisions on these will adversely impact the bank's consolidated earnings. • Our revised model also incorporates a modest deceleration in the bank's asset growth - both on domestic and overseas businesses. On the domestic advances we envisage higher delinquencies on personal/farm sector loans. The bank has around INR4.5bn (US$1.1bn) of such loan exposure.
52-Week Range: Total Entprs. Value (MM): Market Cap. (MM): Institutional Ownership: Shares Out. (MM): Float (MM): Avg. Daily Vol.: $74.25-$33.67 $33,094.1 $21,659.1 86.2% 547.5 547.5 2,627,019
Book Value (MM): Book Value/Share: Net Debt (MM): Return on Avg. Equity: Net Debt/Capital: Dividend Yield: Cash & ST Investments (MM): $11581.2 $20.60 $11435.0 8.6% 98.7% 1.3% $9,140.0
USD Rev. (MM) Prev. EV/Rev. EPS FY Mar Prev. FY FY P/E
2006A 2007A 2008E 2009E 2007.0 2797.0 3709.0 5008.2 --- 4284.0 6051.0 16.5x 11.8x 8.9x 6.6x 1.45 -27.3x 1.54 -25.7x 1.36 2.06 29.1x 1.21 3.03 32.7x
Anindya Chatterjee (212) 284-3490, firstname.lastname@example.org
Our IBN price target is based on P/B. At our price target the bank would quote at a marginal discount to the valuation of local state owned banks and at a considerable (>50%) discount to local private sector banks, and incorporates the ongoing global value compression on the financial sector. At our price target of US$29 and INR590, IBN would quote at 1.3x Mar. 2009 earnings. A rapid recovery in global financial markets poses risks to our bearish call.
Please see important disclosure information on pages 5 - 7 of this report.
ICICI Bank is India's largest bank by market capitalization. It is also the second-largest bank in terms of total assets. Its parent company ICICI was formed in 1955 at the initiative of the World Bank, the Government of India and representatives of Indian industry. In 1999, ICICI become the first Indian company and the first bank or financial institution from non-Japan Asia to be listed on the NYSE. Later in October 2001, ICICI was merged to its subsidiary ICICI Bank. ICICI Bank has a network of about 950 branches and 3,300 ATMs in India and presence in 17 countries. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a spectrum of delivery channels and through its specialized subsidiaries and affiliates in the areas of investment banking, life and non-life insurance, venture capital and asset management.
Please see important disclosure information on pages 5 - 7 of this report.
Anindya Chatterjee , email@example.com, (212) 284-3490
Page 2 of 7
Table 1: IBN’s Investment Exposure in Overseas Markets (approximate figures)
ICICI Bank, India
US$600mn in CDOs US$1.6bn in CDS/CLS 67% in overseas debt instruments of Indian companies 33% in debt instruments of US/EU companies, and some in Asian companies US2.4bn in overseas bank bonds, rest invested in ABS, UK Prime MBS (US$600mn) 85% invested in A- to AAA category 35% in Govt bonds 45% in Bankers Acptance 80mn in Asset Backed CPs Rest in misc. debt securities
ICICI Bank, UK
ICICI Bank, Canada
Source: Company data; Jefferies Research
Table 2: IBN - Income Statement & Estimate Variance Analysis
Income Statement US$ Million Net interest income Fee income Other non interest income Operating income Operating Expenses Depreciation Provisions and Contingencies Total Expense Operating Profit For The Year Provision For Taxes Net Income Earnings per ADR (US$) OLDFY2008E NEWFY2008E 2,001.8 1,663.1 618.9 4,283.9 1,921.4 162.3 784.8 2,868.5 1,415.3 255.7 1,159.6 2.06 1,471.5 1,630.7 606.8 3,709.0 1,888.6 159.1 719.3 2,767.1 942.0 178.7 763.3 1.36 Variance OLDFY2009F -26% -2% -2% -13% -2% -2% -8% -4% -33% -30% -34% -34% 2,602.4 2,392.4 1,055.8 6,050.5 2,430.0 188.5 1,380.8 3,999.4 2,051.2 346.4 1,704.7 3.03 NEWFY2009F 1,525.5 2,416.4 1,066.4 5,008.2 2,449.5 190.4 1,547.3 4,187.2 821.0 139.3 681.7 1.21 Variance -41% 1% 1% -17% 1% 1% 12% 5% -60% -60% -60% -60%
Source: Company data; Jefferies Research
Table 3: IBN – Capital raised in 2H2007
Capital raised by IBN in FY2007/08 - ADR Offering Yen denominated loan Senior unsecured notes US commercial paper Total Source: Company data; Jefferies Research US$bn 2.5 1.5 2.0 0.5 6.5 Equity Capital - Secondary Offering (Local + ADR): US$6bn
Please see important disclosure information on pages 5 - 7 of this report.
Anindya Chatterjee , firstname.lastname@example.org, (212) 284-3490
Page 3 of 7
0 202.0 18.884.293.11 8.6 1.3 3.3 7.7 64.4 30.594.879.302.0 5.0 129.9 0.2 43% 32.157.756.350.3 9.6 19.636.1 26.4 56.3 3.765.814.402.4 7.9 14.632.313.6 6.400. Jefferies Research 2.0 7.7 31.6 8.260.059.2 86.402.382.9 1.0 5.383.844.9 92.2 84.91 4.812.075.253.3 37.2 75.518.7 12.712.0 278.5 58.3 20.3 87.8 3.618.0 56.7 35.9 1.2 7.5 37.2 FY2009F 12.9 9.765.5 96.2 220.127.116.11 489.457.204.7 56.064.222.6 67% 10.976.166.0 FY2006A 5.4 5.4 6.7 51.0 14.157.5 10.289.5 6.522.2 241.0 18.104.22.168 14.860.90 5.7 FY2007A 5.8 14.0 93.444.7 360.682.734.857.8 458.3 57.7 1.755.695.4 26.2 20.2 0.7 1QFY2008 2QFY2008 3QFY2008 4QFY2008E FY2008E 1QFY2009F 2QFY2009F 3QFY2009F 4QFY2009F FY2009F Source: Company data.36 22.099.6 57.7 92.8 125.6 10.Balance Sheet Balance Sheet US$ Million Shareholders Equity -Capital -Reserves And Surplus Liabilities -Deposits growth -Borrowings growth -Other Liabilities And Provisions Total Capital And Liabilities Assets Cash And Balance With Reserve Bank Of India Investments growth Advances growth Fixed Assets Other Assets Total Assets Average Earning Assets (US$ Million) Book value of ADR (US$) Source: Company data.4 22.6 0.398.745.4 1.567.741.4 894.987.408.0 119.922.7 38.4 279.871.7 108.461.591.07 10.1 16.6 66.5 12.661.344.3 17.8 1.559.6 76.02 5.610.6 4.6 977.9 296.3 7.313.094.23 26.779.3 5.5 11.150.879.5 128.7 Table 5: IBN .617.539.0 11.3 303.3 1.719.391.8 0.153.7 of this report.596.557.48 58.9 19.0 76.426.3 2.525.300.61 8.8 23.0 20.669. Jefferies Research Please see important disclosure information on pages 5 .1 4.0 8.8 90.5 1.7 2.6 394.670.371.3 109. (212) 284-3490 Page 4 of 7 5 .4 6.212.com.864.7 14.5 134.7 103.427.310.092.1 5.5 5.4 104.594.004.495.152.4 1.201.1 5.719.374.5 17.7 117.9 83.427.704.557.7 303.527.8 84.3 0.9 11.668.3 17.021.415.350.038.3 1.968.1 67.7 120.0 59.1 90.7 128.6 67.4 95.3 37.1 22.0 62% 898.9 17.8 57.0 141.0 78.33 4.830.0 56.871.2 20.520.08 11.4 4.8 141.087.99 0.9 30.74 22.642.5 17.3 18% 3.7 20.229.902.13 9.603.594.3 30.281.872.142.536.728.(NYSE:IBN) Table 4: IBN .5 0.334.663.586.4 88.034.581.581.8 70.6 12.5 51.440.3 16.755.897.2 1.5 36.83 4.18 0.6 0.404.855.0 385.967.7 7.7 88.860.743.281.620.792.8 93.247.962.164.599.888.3 4.854.705.999.0 5.405.926. Anindya Chatterjee .3 75.770.017.1 90.27 8.860.089.595.8 20.712.143.7 17.136.8 19.270.0 39.Quarterly and Annual Income Statement Income Statement (INRmn) Income Interest Earned Other Income -Fee income -Others Total Income Expenditure Interest Expense Net Interest Income Operating Expenses Depreciation and amortisation Provisions And Contingencies Total Expenditure Operating Profit For The Year Provision For Taxes Net Income Earning per Share (in Rupees) B Basic B Diluted 8.065.7 89.280.3 14.350.557. email@example.com 23.1 62.4 104.0 32% 873.850.457.7 39.7 83.7 38% 15.490.7 25.18 27.020.574.168.0 25.5 1.211.7 24.1 12.8 17.6 FY2008E 11.168.9 43% 4.917.1 1.402.991.2 11.265.2 4.190.7 9.750.4 28.026.7 26% 43.5 19.681.681.54 9.983.027.1 79.9 4.5 2.522.809.1 25.6 24.41 4.8 458.064.557.956.6 11.0 2.612.859.719.9 0.8 6.9 Balances With Banks And Money At Call And Short Notice 1.2 368.350.9 103.8 14.796.481.719.507.2 12.6 5.304.366.1 88.3 57.9 71.400.0 6.
P/E. EV/EBITDA. For companies in this category only. analyses of market risk. including investment recommendations.Coverage Suspended. Meanings of Jefferies & Company. Ratings Buy . Jefferies & Company. which can be amplified for companies with an average stock price consistently below $10. volatility and expected total return over the next 12 months. Inc. Aside from certain industry reports published on a periodic basis. is. certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and subject company(ies). in conjunction with Jefferies engagement in certain transactions. Underperform . I also certify that no part of my compensation was. (212) 284-3490 Page 5 of 7 6 . the financial instruments discussed in this report may not be suitable for all investors and investors must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Jefferies & Company.com.7 of this report. which may include. Inc.The investment rating and price target have been temporarily suspended. or will be. sum of the parts. Inc. but are not restricted to.Describes issuers where. premium (discount)/average group P/E. For Hold rated stocks with an average stock price consistently below $10. has suspended coverage of this company. Anindya Chatterjee. achatterjee@jefferies. The price targets are based on several methodologies. the analyst(s) responsible for the coverage of the financial instruments discussed in this report receive compensation based in part on the overall performance of the firm. the expected total return (price appreciation plus yield) is minus 20% within a 12-month period. the expected total return (price appreciation plus yield) for Buy rated stocks is 20% or more within a 12-month period. EBITDA. and return on equity (ROE) over the next 12 months. P/CF. but various regulations may prevent us from doing so. and for which no financial projections or opinions on the investment merits of the company are provided. free cash flow (FCF). policies. discounted cash flow (DCF). growth/value. NR . Our focus on mid-capitalization and growth companies implies that many of the companies we cover are typically more volatile than the overall stock market. does not cover this company. P/FCF. Hold . related to the specific recommendations or views expressed in this research report. company policy or applicable securities regulations prohibit certain types of communications. Monitor . Anindya Chatterjee . We seek to update our research as appropriate. premium (discount)/average group EV/EBITDA. growth rate. Inc.(NYSE:IBN) ANALYST CERTIFICATIONS I. Risk which may impede the achievement of our Price Target This report was prepared for general circulation and does not provide investment recommendations specific to individual investors. net asset value. As such. EPS. dividend returns. Such suspensions are in compliance with applicable regulations and/or Jefferies & Company.Describes stocks that we expect to provide a total return (price appreciation plus yield) of 15% or more within a 12-month period.Describes stocks that we expect to provide a total negative return (price appreciation plus yield) of 15% or more within a 12-month period. the expected total return (price appreciation plus yield) is plus or minus 20% within a 12-month period. including investment banking income. Valuation Methodology Jefferies' methodology for assigning ratings may include the following: market capitalization. Past performance of the financial instruments Please see important disclosure information on pages 5 . PE/growth. For Underperform rated stocks with an average stock price consistently below $10. CS . the large majority of reports are published at irregular intervals as appropriate in the analyst's judgement. revenue stream. NC .Describes stocks that we expect to provide a total return (price appreciation plus yield) of plus or minus 15% within a 12-month period. Restricted .Not covered.Describes stocks whose company fundamentals and financials are being monitored. directly or indirectly. cash flow (CF). maturity. Important Disclosures As is the case with all Jefferies employees.
value of. Rating Count Percent Count Percent BUY [BUY/ SB] HOLD [HOLD] SELL [SU/ UNPF] 516 321 20 60. This material is intended for use only by persons who have professional experience in matters relating to investments falling within Articles 19(5) and 49(2)(a) to (d) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended) or to persons to whom it can be otherwise lawfully distributed. value of. Any opinion or estimates constitute our best judgment as of this date. In addition.79 15. Anindya Chatterjee . and income from. None of the investments or investment services mentioned or described herein are available to other persons or to anyone in Canada who is not a "Designated Institution" as defined by the Securities Act (Ontario). but has not been independently verified. investors in securities such as ADRs. we do not guarantee its accuracy. firstname.lastname@example.org. a change in exchange rates may adversely affect the price of. we do not guarantee its accuracy. and Jefferies International Limited and their affiliates and their respective directors. Additional information for UK and Canadian investors This material is approved for distribution in the United Kingdom by Jefferies International Limited which is authorized and regulated by the Financial Services Authority ("FSA"). This is not an offer or solicitation of an offer to buy or sell any security or investment.(NYSE:IBN) recommended in this report should not be taken as an indication or guarantee of future results. Additional and supporting information is available upon request. officers and employees may buy or sell securities mentioned herein as agent or principal for their own account. whose values are affected by the currency of the underlying security. therefore. except for any obligations under the rules of the FSA. Please see important disclosure information on pages 5 . or income derived from the financial instrument described in this report. If a financial instrument is denominated in a currency other than the investor's home currency. this material is intended for use only by professional or institutional investors. (212) 284-3490 Page 6 of 7 7 . For Canadian investors.00 OTHER DISCLOSURES This material has been prepared by Jefferies & Company.33 61 25 3 11. and in the belief that it is fair and not misleading. a U.-registered broker-dealer. employing appropriate expertise.82 7. any of the financial instruments mentioned in this report can rise as well as fall and may be affected by changes in economic. The information upon which this material is based was obtained from sources believed to be reliable. The price. Rating and Price Target History for: ICICI Bank Limited (IBN) as of 03-18-2008 07/13/07 I:B:$62 01/16/08 B:$87 75 60 45 30 15 0 2008 Q1 Q2 Q3 2006 Q1 Q2 Q3 2007 Q1 Q2 Q3 Created by BlueMatrix Distribution of Ratings IB Serv.46 2. Inc. and are subject to change without notice. effectively assume currency risk.21 37. Inc. financial and political factors.7 of this report. Jefferies & Company./Past 12 Mos. While we believe this information and materials upon which this information was based are accurate.S.
Anindya Chatterjee . Past performance is not a guide to future performance. future returns are not guaranteed. or needs of individual clients. This report or any portion hereof may not be reprinted. Inc. 68 Upper Thames Street. telephone +44 (0)20 7029 8000. Clients should consider whether any advice or recommendation in this report is suitable for their particular circumstances and. Please see important disclosure information on pages 5 . Inc. in some cases. Fluctuations in exchange rates could have adverse effects on the value or price of. and. research reports are disseminated and available primarily electronically. in printed form. or income derived from. Jefferies International Limited.7 of this report. facsimile +44 (0)20 7029 8010. sold or redistributed without the written consent of Jefferies & Company. Inc.com.(NYSE:IBN) This material does not constitute a personal recommendation or take into account the particular investment objectives. © 2008 Jefferies & Company. and a loss of original capital may occur. Vintners Place. Jefferies International Limited has adopted a conflicts management policy in connection with the preparation and publication of research. seek professional advice. (212) 284-3490 Page 7 of 7 8 . certain investments. the details of which are available upon request in writing to: The Compliance Officer. The price and value of the investments referred to herein and the income from them may fluctuate. London EC4V 3BJ. including tax advice. achatterjee@jefferies. financial situations. Electronic research is simultaneously available to all clients. Jefferies & Company. if appropriate.
CFA +91-22-2286 4370 vishal. ICICI Prudential Life held an unscheduled conference call to address this wide variance in NBAP margins (pretax) reported by Prudential Plc for its Indian operations at 13% for CY07 and ICICI Bank (post tax) at 19% for 9MFY08. Daily Vol. Accordingly.810 : 3. Reuters and Factset.com March 17. Generally. However.BO ICICIBC IN Prudential Plc’s CY07 results are prepared on the basis of European embedded value principles. On the basis of current plans.1 Excerpts from the FY07 results of Prudential Plc (schedule 5) “The negative expense variances in China and India are primarily a reflection of the expenses for new business being in excess of the target levels factored into the valuation of new business for these operations which are at a relatively early stage of development. Promoters MFs. the target levels for India and existing China operations are planned to be attained in 2011” Edelweiss Research is also available on Bloomberg EDEL <GO>. Table 1: New business margins for Prudential’s Asian operations New business margins (%) CY07 Hong Kong Korea Taiwan India China Other Weighted average for Asian operations Source: Prudential Plc Vishal Goyal.331. 2. Thomson First Call.India Equity ICICI Bank Research | Banking Event Update ICICI BANK Difference in prudence INR 757 BUY Prudential Plc declared its full year results for CY07 on March 14.goyal@edelcap. ICICI Prudential Life reports NBAP margins on an achieved profit framework considering steady state long term expense ratio and amortises its branch roll out expenses.9 40. while Prudential Plc is accounting for them upfront. FIs & Banks FIIs Others : : : : 0. Expenses for future business (marketing cost etc).nair@edelcap. Expenses to generate the current year’s business (commission etc).5 : 932. 1 9 . Prudential Plc has considered a larger part of expenses incurred in more than doubling its branch network to 1070 and agency force to 238.0 43. BSE (‘000) : : 1.465 / 719 1. 3. ICICI Prudential Life is amortising these expenses.2 Share Holding Pattern (%) 1.3 / 20. 2008 and reported a sharp decline in pretax new business achieved profits (NBAP) margins from 23% in CY06 to 12% in CY07 for the Indian operations. Expenses on branch rollout (establishment expenses).000 upfront. giving their branches time to achieve productivity gains and other benefits. insurance companies incur three types of expenses- Bloomberg Market Data 52-week range (INR) Share in issue (mn) M cap (INR bn/USD mn) Avg.com Ajitesh Nair +91-22-4009 4535 ajitesh.112.0 16. while calculating margins on new business premiums. 2008 CY06 69 35 55 23 43 72 54 73 37 58 12 50 61 50 We believe there are three primary reasons for this difference Results prepared on the basis of European embedded value principles Reuters : : ICBK.
3 12. Since January 2008. The company is planning to sell high-margin health insurance products aggressively in the coming years. Concerns over MTM losses on foreign currency derivatives contracts still persists on the bank. Other highlights The company is likely to break even in 2011. the average CDS spreads (5 year) on global banks’ bonds have moved up by more than 120bps.0 13. How does it affect valuations for ICICI Pru Life Insurance? The difference in reported margins is alarming. on the basis of current expansion plans.5 7. Company ICICI Bank CY06 16.0 Increasing proportion of lower margin products Nearly 4% decline in NBAP margins reported by Prudential Plc in CY07 over CY06 was on account of revised Insurance regulatory and Development Authority (IRDA) guidelines for unit linked products and increasing proportion of low-margin products.8 12. additional MTM losses on the UK subsidiaries’ book can be expected. pressure on margins will continue.5 23. Investment of ~USD 2 bn from the UK subsidiaries is in global banks’ debt papers.5 NA 5.5 9. Hence. which is similar to the increase seen in first ten months (April 2007 to January 2008). Expense overruns would have an impact on the current year NBAP margin and embedded value (currently not disclosed by Indian companies). and could add further disbelief to the already less believed number of NBAP margin.8 5.3 13.0 8. the management expects both the reported NBAP margins (12% and 19%) to converge over three years as the company moves closer to break even.3 Impact due to the difference Lower margin for Prudential Lower margin for Prudential Higher margin for Prudential Higher margin for Prudential Higher margin for Prudential Extent of impact High Medium Low Low Low 15.0 19. 2 10 .ICICI Bank As mentioned in Prudential Plc’s report. more significantly than anticipated earlier. This was also the key reason for ICICI Prudential Life reporting a decline in its NBAP margins from 23% in FY07 to 19% for 9mFY08.5 NA 10. Concerns on ICICI Bank Increase in credit spreads on global banks would impact MTM losses of ICICI Bank. The branch network more than doubled to ~1070 branches in the last one year.3 5. due to shift in product portfolio and ongoing expansion. where spreads have moved up wildly in the last one month.0 8. There is also a difference in economic assumptions used by Prudential Plc and ICICI Bank (which is in public domain) Table 2: Difference in economic assumptions Prudential Inc CY07 Discount rate Equity return Inflation Cash return Bond return New Business Margins Source: Prudential Plc. Also. Capital infusion of USD 100 mn in Q4FY08.
0x FY09E book and 9.4x FY09E earnings. near-term headwinds persist We are revising our fair value estimate of its banking business from INR 875 per share to INR 635 per share due to concerns on MTM losses on credit derivatives and possible losses on forex derivative products. Our revised SOTP stands at INR 1023 per share on FY09E estimates. Adjusting for the value of subsidiaries. We maintain Buy due to attractive valuations. We are reducing our estimates for the life insurance business from INR 325 per share to INR 279 per share to factor in lower margins and lower premium growth.ICICI Bank Valuations: SOTP offers upside. the stock is currently trading at 1. while we anticipate headwinds to limit performance in the near term. 3 11 .
Power Finance Corporation.422 90-105 Buy Subscribe Event Update 18-Feb-08 REC Valuations comfortable. This document does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. copied. Each recipient of this document should make such investigation 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).com vikas. Edelweiss is committed to providing independent and transparent recommendation to its client and would be happy to provide any information in response to specific client queries. Edelweiss or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Edelweiss Research is also available on Bloomberg EDEL <GO>. ICICI Bank. availability or use would be contrary to law. portfolio management and brokerage group. publication. IDFC. or use by. group companies. The information given in this document is as of the date of this report and there can be no assurance that future results or events will be consistent with this information. Analyst holding stock: No Copyright 2007 Edelweiss Research (Edelweiss Securities Ltd). Reliance Capital. and employees may: (a) from time to time. special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. LIC Housing Finance.ICICI Bank Edelweiss Securities Limited. any person or entity who is a citizen or resident of or located in any locality. Fortnightly 25-Feb-08 HDFC Bank When Harry met Sally…. SREI Infrastructure Finance. The disclosures of interest statements incorporated in this document are provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. indirect. Thomson First Call. country or other jurisdiction. officers. market reacts. Result Update Distribution of Ratings / Market Cap Edelweiss Research Coverage Universe Buy Rating Distribution* 110 Rating Interpretation Rating Expected to appreciate more than 20% over a 12-month period appreciate up to 20% over a 12-month period depreciate up to 10% over a 12-month period depreciate more than 10% over a 12-month period Accumulate 49 Reduce 10 Sell 1 Total 190 Buy Accumulate * 14 stocks under review / 6rating withheld > 50bn Market Cap (INR) 96 Between 10bn and 50 bn 70 < 10bn 24 Reduce Sell This document has been prepared by Edelweiss Securities Limited (Edelweiss). where such distribution. directors. Reuters and Factset. Kotak Mahindra Bank. Board: (91-22) 2286 4400. 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ICICI Bank 1500 1340 (INR) 1180 1020 860 700 Mar-07 Buy Apr-07 Redc Sep-07 Oct-07 Nov-07 Dec-07 Jun-07 Jul-07 Jan-08 Feb-08 May-07 Aug-07 Mar-08 Accm Accm Accm Buy Buy Recent Research Date 4-Mar-08 Company Banking Title Price (INR) Recos Near term headwinds offset valuations comfort (SOBs) Sector Update 3-Mar-08 BFSI Budget talks. Email: research@edelcap. directly or indirectly related to specific recommendations or views expressed in this report. for any purpose. its holding company and associate companies are a full service. Edelweiss is under no obligation to update or keep the information current. 12 . directors. This information should not be reproduced or redistributed or passed on directly or indirectly in any form to any other person or published. 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....8 1. For the core bank.553 123. BNP Paribas estimates Share Price Daily vs MSCI (INR) 1.... We expect the low-cost deposit proportion to expand by a further 27% over FY08-10.5%) Consensus (mean) . it should trade at 16.5b BUY Recs in the Market Positive.9 1.3 18...2 2009E 69.......(0.... We expect securities.. Diff from Consensus.0 22..1 3.500 1.. We anticipate EPS expansion of 22% by FY10 from this expansion in the loan book..231 65. scale and loan franchise make it a beneficiary of India’s ongoing economic growth..com Earnings Estimates And Valuation Ratios YE Mar (INR m) Operating profit Reported net profit Recurring net profit Recurring EPS (INR) Rec EPS growth (%) Recurring P/E (x) Dividend yield (%) Price/book (x) Price/tangible book (x) ROA (%) ROE (%) 2007 36.416..826 39..04 13.410...19 11...ICICI Bank Vijay Sarathi (91 22) 6650 1677 S O W H A T ? T H E B N P ICICIBC IN Initiation 13 March 2008 A N G L E S E C T O R : Target Price .....4 Negative .410.... We anticipate a NIM expansion of 40bp by FY10..... Based on our target price for the core bank. we do not anticipate any significant credit quality concerns in the domestic book... BUY Beneficiary of corporate capex and retail boom: BUY We expect an aggregate capital expenditure outlay of USD750b in infrastructure and allied sectors over the next four years.. to arrive at a price target of INR972.. 13 ..0 2.069 65.1 1..0) 12m avg daily turnover (USD m) Free float (%) Major shareholder 12m high/low (INR) ADR (USD) Avg daily turnover (USD m) Discount/premium (%) Disc/premium vs 52-wk avg (%) Source: Datastream/Bloomberg Please see the important notice on the inside back cover..INR55. On the fee income front.....1 2.435.3 3.. Net Profit 09.100 900 700 Mar-07 Next results/event Market cap (USD m) ICICI Bank Rel to MSCI India (%) 5 0 (5) (10) (15) (20) Jun-07 Sep-07 Dec-07 Mar-08 April 2008 23. Retail loan book to grow at 12%. We believe the stock correction in the recent sell off is overdone... Current Price.8 1. we believe ICICI Bank. Global credit problems cause investment mark-downs We expect more investment book-related write downs from the bank arising out of the deteriorating credit spread situation.....3b Consensus (momentum) ........email@example.com 1...4%) Consensus (median) INR1. we have used relative multiple valuation and we estimate the aggregate subsidiary contribution per share of ICICI Bank will be INR438.67 24.. Net interest margin expansion of 40bp in next two years ICICI Bank has increased its low-cost deposit base over FY03-07 by approximately 61%..8% Sources: Thomson One Analytics...00 India Financials/Banks P A R I B A S O V E R W E I G H T Our target price implies an upside of 58% from the current price...6 2. especially on the corporate loan front... INR893.bnpparibas...7 25.102 43.481 54.. We also anticipate significant value from its life insurance business over the next three to five years..00/803.4 1.40 Upside/ (Downside).... with a retail book of 60% and impressive management depth is best placed to win the retail and non-metro spending boom anticipated in India.7 2....481 48. While we anticipate a more muted retail loan-book growth in the short-term.. EPS expansion of 22% on 27% growth in corporate loans and 12% growth in retail loans. CFA BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1677 vijay.... 57. This doesn’t include possible value unlocking from the listing of securities division over the next two quarters.5 100 Allamanda Investments (7%) 1..18 12.8 1..... EPS to grow 22% and fee incomes 30-40% by FY10...826 43.......1 2010E 86....8 1... Sector bellwether. Valuation – we see significant upside Our 12-month price target for ICICI Bank is INR1..4) (21.. ICICI’s corporate loan book to grow by 27% over FY08-11 on the back of USD750b outlay of corporate capex..64 7..96x our FY10 BV estimate..4 15.7x our FY10 EPS estimate and 1.13 19.... Its impressive balance sheet...... Vijay Sarathi...16 12......410.1 (3. BNP Paribas estimates Initiate with a BUY and TP of INR1.. INR54............3 Sources: ICICI Bank...bnpparibas..(firstname.lastname@example.org Consensus (momentum) .... We believe ICICI Bank will translate this corporate capex push into an overall loan growth of 20% over the same period.3 1.17 3. as a result of the unfavorable interest-rate regime.300 1.....0 1.15 13..00 Consensus (momentum) ..28 Neutral. Bloomberg..... we use a three-stage Dividend Discount Model (DDM).102 34.. we are modeling for a consolidated CAGR of 20% over FY08-10.95 43.. For ICICI’s subsidiaries..com Abhishek Bhattacharya BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1678 abhishek. asset management and private equity business to increase fee incomes at a CAGR of 3040% from FY08-10.102 31.069 58..4 2008E 54... INR1.738 54..480 31...... While this is a near-term risk. Diff from Consensus.
...................................................410 ........................................... Balance sheet and cash flow ........................................................... 20 Exposure to the global sub-prime crisis 20 Appendices ............................... 15 Softer rate regime should benefit a wholesale borrower like ICICI Bank 18 Improving asset quality over the years .......................................... Key company information 22 23 Financial statements – P&L.........VIJAY SARATHI ICICI BANK ICICIBC IN 13 MARCH 2008 Contents Recommended BUY with TP of INR1............................................................ 3 Core bank valuation Subsidiary valuation Peer valuation 4 5 5 India capital expenditure cycle going up............................................................................. 24 Please see India Research Team list on page 26........................... 6 Capex a recipe for a 27% increase in loan book 6 Market leader in retail financial services......... 2 BNP PARIBAS 14 ..................... 22 1....................................................................... 10 Modelling a 12% increase in the retail loan book 10 NIM will expand by 40bp by FY10 ............. Devil’s advocate: Risks to our investment case 2........
which translates into an EPS expansion of 22% by FY10. We expect the core bank to increase its ROE from the current 12.VIJAY SARATHI ICICI BANK ICICIBC IN 13 MARCH 2008 VALUATION Recommended BUY with TP of INR1. We have valued the core bank through a three-stage dividend discount model (DDM).410 We believe ICICI Bank is among the best-placed Indian banks to benefit from the next few years’ expected economic expansion for the following reasons: 1.3% by FY10. However. Our target price implies an upside of 58% from the current market price. We anticipate an increase of 20% in its fee income over FY08-10. 2. The bank’s strong retail franchise and its deep relationships on the corporate loan front will ensure a robust loan book growth of 20% over the next three years. We project USD750b worth of corporate capital expenditure to happen in the next four years backed by spending in infrastructure and allied areas. We expect muted growth of 12% in ICICI Bank’s retail book for FY09 as a result of relatively higher interest rates and steep asset valuations. BNP Paribas Stake (%) 51 74 74 100 100 100 100 100 100 3 BNP PARIBAS 15 . We have used appropriate relative valuation multiples for all the subsidiaries. 5. ICICI Bank has the following stakes in its subsidiary companies: Exhibit 1: Stake In Subsidiaries Company ICICI Prudential Asset Management Co & Trust ICICI Lombard General Insurance Co ICICI Prudential Life Insurance Co ICICI Securities ICICI Venture ICICI Home Finance Ltd ICICI Bank UK Ltd ICICI Bank Canada Ltd ICICI Bank Eurasia Ltd Sources: ICICI Bank. and an impressive cross-sell network. a scalable technology and operational platform.2% to 12. and the market has not ascribed the full value implicit in the bank’s subsidiaries. The net interest margins for the bank should expand by 40bp by FY10 on the back of increases in low-cost deposit market shares and a more-benign interest rate regime. 4. with a strong retail franchise. We believe ICICI stock has over corrected in the recent market meltdown. 3. We model a corporate loan book growth of 27% as an off-shoot of the capex. ICICI Bank’s growing proportion of fee incomes will contribute to the bank increasing revenue faster than its loan book. we believe ICICI Bank is the best possible way to play the India consumer consumption story.
6 48.8 50.01 2.5 58.91 1. 3.75% 13.93 1.9 87. We factored in a cost of equity of 13.00 2.5% Our dividend payout ratios range from 31% in the first stage to 50-60% in the intermediate phase.9 104.10 2.7 109.0 PV of cash flows (INR) Terminal value (INR) 202.16 4. 2.25% 13.55% for ICICI Bank.5 16.0 13.00% 12.1 73.5 73.5% over FY14-20.88 1.05 2.6 15.75% 1. which we believe will be supported by a 16% increase in broad money supply (M3).10 2.0 4.1 5.3% by FY10.15 2.4 16.4 769.90 1.92 1.4 Cost of equity (%) RFR (%) Beta Equity risk premium – ERP (%) ROE (%) Terminal Payout (%) Sustainable growth (%) 13.1 39.95 2.21 4 BNP PARIBAS 16 .50% 1. 5. some of our key assumptions included: 1.3 67. 4.5% and an equity risk premium of 5.00% 13.2 68.4 60.00 2.00% 1.02 3.8 22.2 32.50% 1.76 1.25% 14. and a terminal growth rate of 4%.25% 1.9 63.2 16.1 769. followed by a compounded annual increase of 7.7 38.6 10.3% over FY09-13.2 48.1 82. with a terminal payout ratio of 67%.11 4.91 1.0 52.5 1. Exhibit 2: Dividend Discount Model Year-end 31 Mar EPS (INR) DPS (INR) PV – DPS (INR) 2007 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E Terminal 34.1 17.VIJAY SARATHI ICICI BANK ICICIBC IN 13 MARCH 2008 Core bank valuation In our three-stage DDM evaluation of the core bank.0 17.87 1.75% Source: BNP Paribas estimates —–——————————Terminal growth rate –——————————— 3.87 1.4 Equity value/share (INR) Source: BNP Paribas estimates 972 Exhibit 3: Sensitivity Analysis – Price to Book Value (FY10) Core (P/BV) WACC 14.95 2.8 14.05 2.1 96. We expect ICICI Bank’s core ROE to be 12.88 1.96 2.84 1. We estimate the aggregate-loan growth will be in the range of 16%.4 91.9 17.50% 13.0 13.7 14.96 2.2 15.6 7.97 2.3 15.06 4. based on a risk-free rate of 7.2 14.4 41.83 1.2 12.2 63.5 12. Our income-development scenarios are based on our assumption of a 8% increase in real GDP until FY13.5 77.6 27.80 1.84 1.9 18.80 1.8 100.06 2.01 2. We modelled for income CAGR of 16.
85 11.VIJAY SARATHI ICICI BANK ICICIBC IN 13 MARCH 2008 Subsidiary valuation Exhibit 4: Subsidiary Valuation Prudential Life Insurance APE FY10 (INR b) APE growth expected (%) Relative Mcap/NPE multiple ICICI stake (%) Contribution per ICICI Bank share (INR) Lombard General Insurance Expected FY10 Earnings (INR m) Relative P/E (x) ICICI stake (%) Contribution per ICICI Bank share (INR) ICICI Prudential Asset Management Expected FY10 AUM (INR b) Relative Mcap/AUM (%) ICICI stake (%) Contribution per ICICI Bank share (INR) Total subsidiary value (INR) Source: BNP Paribas estimates ICICI Venture 136.00 12.17 1.35 16.12 2.22 1.09 1.83 0.96 0.20 20.97 1.06 1.73 16.15 5.83 2.00 2.02 12.17 1.09 9.92 1.15 HDFCB IN AXSB IN KMB IN SBIN IN PNB IN BOI IN BOB IN CBK IN 3.80 2.30 8.90 7.17 6.50 2.79 1.02 1.35 2.76 10.78 2.00 74.87 14.82 12.26 20.0 51 40 Other subsidiaries (INR) 438 12 Expected FY10 Earnings (INR b) Relative P/E (x) Contribution per ICICI Bank share (INR) 4.97 FY10E (x) 16.35 1.10 10.80 14 60 4.36 11.253 7.07 5.47 1.72 FY10E (x) 1.28 6.54 12. BNP Paribas estimates –——— P/E ———– FY09E (x) 19.32 16.96 ICICIBC IN 2.13 15 74 21 Expected FY10 Earnings (INR b) Relative P/E(x) ICICI stake (%) Contribution per ICICI Bank share (INR) ICICI Bank UK 1.62 3.44 5 BNP PARIBAS 17 .13 1398 HK 600016 CH 3968 HK 939 HK MAY MK 060000 KS 004940 KS 998 HK 2388 HK 2.74 6.34 2.30 2.44 1.26 3.66 21.21 4.25 6.50 17.14 11.80 16 100 69 80 260 25 100 57 Peer valuation Exhibit 5: Comparison Of Peer Valuation Company BBG code ——— P/BV ——— FY09E (x) ICICI Bank Regional peers ICBC China Minsheng ‘A’ China Merchant Bank ‘H’ China Construction Bank ‘H’ Malayan Banking Kookmin Bank Korea Exchange Bank China CITIC Bank BoC HK Holdings Indian banks H D F C Bank Ltd Axis Bank Ltd Kotak Mahindra Bank Ltd State Bank of India Punjab National Bank Bank of India Bank of Baroda Canara Bank Sources: Bloomberg.55 5.90 12.00 179 Current AUM (INR b) Target FY10 AUM (INR b) Relative Mcap/AUM multiple (%) ICICI stake (%) Contribution per ICICI Bank share(INR) ICICI Securities 2.60 8.18 0.83 10.06 20.76 3.00 10.43 0.28 14.00 2.80 0.91 2.43 1.60 6.92 1.
ICICI Bank’s loans outstanding to core infrastructure and services sectors. grew at a CAGR of 27.23 58. mining and allied sectors.000 0 Utilities Construction & housing Telecom Metal & mining Oil & gas Others Infrastructure sectorutilities.9 21. Capex a recipe for a 27% increase in loan book ICICI Bank has deep corporate relationships in this space.000 7.000 3. we anticipate an EPS expansion of 22% by FY10 from this loan book growth. With a rich history in project financing and deep corporate relationships.5%.000 5. As a result. construction and telecom to account for around 60% of USD750b capex over the next four years FY08E Source: BNP Paribas estimates FY09E FY10E FY11E We expect this USD750b capex to translate into USD550b of credit demand. construction. Between 2004 and 2007.000 2.04 59.0 20.34 57.7 6 BNP PARIBAS 18 . transportation. which translates into a 25% CAGR for the corporate loan book of all scheduled commercial banks.95 EPS expansion (%) 20. This is based on our analysis of the top-down and bottom-up trends in corporate capital expenditure cycles over this period. primarily across infrastructure and allied sectors. This represents a CAGR of 25% over the period FY08-11.000 1. we expect ICICI Bank to be able to increase its corporate loan book at a CAGR of 27% over the next few years.9 22.13 59. Exhibit 6: Capex Trend (INR b) 9. such as oil and gas.000 6.8 23.000 4. Exhibit 7: EPS Sensitivity To Corporate Loan Growth Corporate loan growth (%) 23 25 27 29 31 Source: BNP Paribas estimates FY10E EPS (INR) 56.VIJAY SARATHI ICICI BANK ICICIBC IN 13 MARCH 2008 INVESTMENT THESIS: CORPORATE SCENARIO India capital expenditure cycle going up We expect Indian companies to push an aggregate capital expenditure of USD750b over the next four years.000 8. power.
RBI. BNP Paribas estimates 7 BNP PARIBAS 19 . ICICI Bank generates fee income through a number of product lines: Exhibit 8: Fee Based Products Retail Bank assurance Mutual fund distribution Foreign exchange transactions and remittances Letters of Credit for SMEs Securities brokerage Share depositary accounts Corporate Syndication Securitization Project finance structuring M&A Letters of credit Cash management and custodial services Source: ICICI Bank ICICI Bank is a the preferred partner for a large number of Indian companies that need to raise debt from foreign credit markets in the form of external commercial borrowing (ECB). Exhibit 9: Aggregate Foreign Commercial Borrowing (USD b) 18 16 14 12 10 8 6 4 2 0 Mar-04 External debt (LHS) Growth (RHS) (%) 90 80 70 60 50 40 30 20 10 0 Mar-05 Mar-06 Mar-07 Sources: CMIE. BNP Paribas estimates Exhibit 10: Indian Investment Abroad (USD b) 30 25 20 15 10 5 0 Mar-04 Direct investment abroad (LHS) Growth (RHS) (%) 90 80 70 60 50 40 30 20 10 0 Mar-05 Mar-06 Mar-07 Sources: CMIE.1% between 2004-07. RBI. We believe ICICI Bank is the preferred lead arranger for a large number of these transactions and that this revenue stream should continue to boost ICICI’s fee income. The aggregate external commercial borrowing by Indian companies increased by a CAGR of 59.VIJAY SARATHI ICICI BANK ICICIBC IN 13 MARCH 2008 In addition to this growth in interest income from corporates.
due to regulatory requirements around deposit stabilization. Continental Europe and Southeast Asia. Currently the UK subsidiary has started retail direct banking business and a majority of the funds are parked in investments. These subsidiaries’ combined revenue increased at a CAGR of 490% over this period. 8 BNP PARIBAS 20 . Canada and Eurasia grew at a phenomenal pace between 2004 and 2007. BNP Paribas estimates ICICI Bank has reined in its cost structure over the last few years as is evident the bank’s gradually improving return on assets. China. BNP Paribas estimates Exhibit 12: Revenue Growth Of International Banking Subsidiaries (INR b) 35 30 25 20 15 10 5 0 FY04 FY05 FY06 FY07 FY08 FY09E Sources: ICICI Bank. We believe ICICI’s international banking operations will continue to drive growth and we have modeled for revenue CAGR of 53% FY07-09 and an asset CAGR of 51% over the same period. on account of the expansion in the number of branches and ATMs. while the asset base grew at a CAGR of 299%. Canada and Russia and has branch presence or representative offices in several other regions including the US. We expect operational costs to increase by 25% over the next two years. South Africa. Exhibit 11: Assets Growth Of International Banking Subsidiaries (INR b) 800 700 600 500 400 300 200 100 0 FY04 FY05 FY06 FY07 FY08 FY09E Sources: ICICI Bank. the Middle East. ICICI Bank’s three foreign banking subsidiaries in the UK. We believe ICICI Bank is currently the best-placed Indian bank to cater to Indian companies’ increasing appetite for international mergers and acquisitions.VIJAY SARATHI ICICI BANK ICICIBC IN 13 MARCH 2008 Growth in international banking – a key lever ICICI Bank operates subsidiaries in the UK.
0 0.0 1.25 1.00 0.5 2.10 1.95 ROA is expected to rise with lowering of cost-toincome ratio by FY10 FY07 FY08E FY09E FY10E Sources: ICICI Bank.15 1.0 FY05 FY06 FY07 FY08E FY09E FY10E Sources: ICICI Bank. BNP Paribas estimates Exhibit 14: Operating Efficiency (%) 60 50 40 30 20 10 0 FY03 FY04 Cost/assets (RHS) Cost/income (LHS) (%) 3.5 1.5 0.VIJAY SARATHI ICICI BANK ICICIBC IN 13 MARCH 2008 Exhibit 13: ROA vs Cost To Income Ratio (%) 58 56 54 52 50 48 46 FY06 Cost/income (LHS) ROA (RHS) (%) 1.0 2.05 1.20 1. BNP Paribas 9 BNP PARIBAS 21 .
Auto loans: 13%. 10 BNP PARIBAS 22 . property prices have surpassed the ‘affordability quotient’ for a majority of home buyers in India. as a result of prevailing high interest rates. Exhibit 16: Housing Affordability (INR m) 9 8 7 6 5 4 3 2 1 0 Jan-03 Jul-03 Jan-04 Affordability Mean home price Mean home prices are moving beyond common affordability Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Source: BNP Paribas estimates As the above chart illustrates.000 900 800 700 600 500 400 300 200 100 0 Two wheeler loans (LHS) Auto loans (LHS) Home loan (LHS) Two wheeler market share (RHS) Personal loans market share (RHS) Home loans market share (RHS) Credit cards (LHS) Other personal loans (LHS) Corporate loans (LHS) Credit cards market share (RHS) Auto loans market share (RHS) (%) 100 80 60 40 20 0 Composition of retail book: Home loans: 50%. The current retail exposure for ICICIBC is approximately 62% of its total loan book. BNP Paribas estimates FY06 FY07 FY08 Modelling a 12% increase in the retail loan book Relatively higher interest rates and steep valuations in the property market have caused the mortgage business of ICICI (comprising 31% of the total loan book) to slow down over the last 15-18 months. we believe ICICI is among the best-placed banks in India to expand its scale in this segment in the long term. We do not anticipate a meaningful turnaround in this situation until FY10. Credit cards: 6% FY05 Sources ICICI Bank. In our analysis. capitalized by the prime-lending rate applicable at that point in time.VIJAY SARATHI ICICI BANK ICICIBC IN 13 MARCH 2008 INVESTMENT THESIS: RETAIL SCENARIO Market leader in retail financial services ICICI Bank is the pioneer of the retail financial services growth in India. expanding its retail loan book by 61% in the past four years. Exhibit 15: Retail Book Composition (INR b) 1. we have defined the ‘affordability quotient’ as the net disposable income. We expect ICICI to grow its retail book by focusing on growth in unsecured personal loans and credit card issuances. since about January 2006. An emphasis on unsecured loans could lead to an increase in the NPA levels in the future. While we see a muted growth in retail financial services in the short term. Personal loans: 28%.
The asset pool securitized typically consists of consumer loans.13 59.6 25.5 EPS expansion (%) 18. The low levels of personal debt and deep demand-supply mismatch in sectors like housing will ensure that the development story remains in place. With approximately 100m non-resident Indians living abroad. 11 BNP PARIBAS 23 . BNP Paribas Sufficient management depth to sustain growth in this market Though the retail loan increases are likely to be muted in the near term.9 23. We believe the currency remittance business will be a key contributor to the fee income of ICICI Bank in the coming years.85 56. the total remittances into India increased 16.4 20.VIJAY SARATHI ICICI BANK ICICIBC IN 13 MARCH 2008 EPS sensitivity to retail-loan increases Exhibit 14 illustrates the EPS sensitivity to our assumptions about the growth in the bank’s retail loan book. ICICI management estimates it has a 25% market share in this business.3 A big player in NRI remittances to India ICICI Bank is a key player in India’s inward foreign currency-remittance business through its internet-based wire transfer remittance facility ‘Money2India’. with its strong retail franchise and management depth to benefit from these long term growth drivers. we do not see any grave threat to the robust long-term development expected in retail financial services. Exhibit 18: Private Remittances To India (USD b) 12 10 8 6 4 2 0 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Sources: RBI. CMIE.48 58. We believe ICICI Bank earns a transaction fee worth approximately 15bp in this business.5% over the last two years.5% over the last year.8 61. Exhibit 17: EPS Sensitivity To Growth In Retail Loans Retail loan growth (%) 8 10 12 14 16 Source: BNP Paribas estimates FY10E EPS (INR) 54.1 21. and approximately 9. Securitization ICICI Bank securitizes about 10% of its loan book to maintain its disbursal growth rate. We expect ICICI Bank.
12 BNP PARIBAS 24 . We expect the venture fund and mutual fund AMC to grow their AUMs by 80% and 41% respectively over FY08-FY10. asset management & brokerage businesses For the consolidated ICICI Bank. Exhibit 20: Fee Income (INR b) 140 120 100 80 60 40 20 0 FY02 FY03 FY04 FY05 FY06 FY07 FY08E FY09E FY10E Sources: ICICI Bank. fee income was approximately 38% of total income at the close of FY07. BNP Paribas Book value securitized (LHS) Proportion of applicable loan book (RHS) (%) 30 25 20 15 10 5 0 FY06 FY07 Growth in fee income from banking.VIJAY SARATHI ICICI BANK ICICIBC IN 13 MARCH 2008 Exhibit 19: Loan Securitization (INR b) 30 25 20 15 10 5 0 FY05 Sources: ICICI Bank. Between 2004 and 2007 fee income recorded a stupendous growth of 73% CAGR. We expect it to grow at 20% CAGR till FY10. BNP Paribas estimates ICICI’s two asset management subsidiaries – ICICI Ventures (primarily venture capital investments) and ICICI Prudential AMC (which manages a number of mutual funds) have shown impressive growth in their Assets under Management (AUM) in recent times.
We expect Lombard to show a premium growth of 20% from FY08 to FY10. We expect Prudential Life to grow its annualized premium equivalent (APE) income at 39% from FY08 to FY10 with a new business adjusted profit (NBAP) margin of 20%.000 800 600 400 200 0 FY05 ICICI AUM (LHS) Market share (RHS) (%) 14 12 10 8 6 4 2 0 FY06 FY07 FY08E FY09E FY10E Sources: ICICI Bank. 13 BNP PARIBAS 25 . BNP Paribas estimates Exhibit 22: AUM Growth For ICICI Venture Fund (INR b) 300 250 200 150 100 50 0 FY06 FY07 FY08E FY09E FY10E Sources: ICICI Bank.400 1. BNP Paribas estimates We also expect ICICI Securities (the brokerage and investment banking subsidiary) to grow its PAT by 44% from FY08 to FY10 backed by 22% growth in its fee income from investment banking operations and 37% growth in its brokerage income from FY08 to FY10.200 1.VIJAY SARATHI ICICI BANK ICICIBC IN 13 MARCH 2008 Exhibit 21: AUM Growth For ICICI Prudential Asset Management (INR b) 1. Market leadership position among the private sector players in insurance space: We expect ICICI’s Insurance arms – Prudential Life Insurance and Lombard General Insurance to benefit from their market leader stature amongst the fast growing private sector pie.
BNP Paribas 2 4 6 8 10 12 14 16 18 20 (%) 14 BNP PARIBAS 26 .VIJAY SARATHI ICICI BANK ICICIBC IN 13 MARCH 2008 Exhibit 23: Market Share Hierarchy In Life Insurance LIC ICICI Prudential Life Bajaj Allianz SBI Life HDFC Stndard Reliance Life Birla Sunlife Max New York Aviva Tata AIG Kotak Mahindra 0 Sources: IRDA. BNP Paribas 10 20 30 40 50 60 70 (%) Exhibit 24: Market Share Hierarchy In General Insurance New India National Insurance Oriental Ins United Ins ICICI-lombard Bajaj Allianz Reliance General IFFCO-Tokio Tata-AIG Royal sundaram Cholamandalam 0 Sources: IRDA.
While public sector banks (state owned banks) enjoy a pre-eminent position in terms of low-cost deposit base (also called CASA deposits in India – stands for Current Accounts and Savings Accounts). compared with a growth of 17. Bank branch expansion in India is regulated by RBI (the central bank) and banks cannot expand their branch network without RBI’s approval. overseas borrowings (commercial and multilateral).8% over FY05-07. 15 BNP PARIBAS 27 . We expect ICICI to lower its cost of funding as its low-cost deposit base expands.1% in time deposits. ICICI Bank depends on domestic borrowings. As low-cost deposits are directly tied to the size of the branch network. and we anticipate ICICI will maintain its current deposit efficiency. Exhibit 25: CASA Market Share ICICI Bank FY07 FY06 FY05 FY04 FY03 0 2 4 6 8 10 Private banks sector 12 14 16 18 20 22 24 26 (%) Sources: CMIE. the number of branches a bank has. 32. the bank increased its deposit base by a CAGR of 56.1% for public-sector banks. BNP Paribas ICICI Bank has expanded its CASA market share by 218% over the period of 20032007. The bank’s CASA deposits have grown at a CAGR of 61% over the same period. We expect the bank to have these new branches operational by 3Q09. backed by a growth of 56% in lowcost CASA deposits and an equally strong growth of 57. is a key success factor for any bank in India. retail and corporate deposits. Within CASA. savings accounts increased faster than current accounts. private-sector banks have been increasing their CASA base steadily over the years. On the deposit front.5% for privatesector banks and 29% for foreign banks in India.VIJAY SARATHI ICICI BANK ICICIBC IN 13 MARCH 2008 INVESTMENT THESIS: MARGINS NIM will expand by 40bp by FY10 The Reserve Bank of India (RBI) has approved 450 new deposit-taking branches for ICICI Bank.
500 3.) 1.000 900 800 700 600 500 400 300 200 100 0 FY04 No.200 1.800 1.000 1. We believe this vulnerability will be reduced.500 1.500 2. BNP Paribas estimates The average cost of deposits for the bank is vulnerable to the interest rate paid on time deposits.000 1. BNP Paribas FY06 FY07 16 BNP PARIBAS 28 .400 1. as ICICI continues to expand its branch network and increase the CASA portion of its deposits.VIJAY SARATHI ICICI BANK ICICIBC IN 13 MARCH 2008 Exhibit 26: Deposit Break-Up by Type (INR b) 2. BNP Paribas Current Savings Term FY04 FY05 FY06 FY07 Exhibit 27: Deposit Efficiency Of Branches (No. Exhibit 28: Cost Of Deposits (%) 8 7 6 5 4 3 2 1 0 Savings accounts Time deposits Average FY05 Sources: ICICI Bank. Over the period FY05-07 the average cost of deposits for ICICI Bank increased by approximately 2%.4% increase in the cost of time deposits.000 800 600 400 200 0 FY03 Sources: ICICI Bank.000 2.600 1.000 500 0 FY05 FY06 FY07 FY08E Sources: ICICI Bank. primarily driven by a 2. of branches (LHS) Deposit per branch (RHS) (INR m) 3.
corporate deposits.800 1. ICICI Bank cut back on its domestic market borrowing (primarily bond placements.0 FY06 FY07 Sources: ICICI Bank.200 1. approximately 81% of the relatively expensive interest-bearing deposits have a maturity of less than one year. 95% of the bulk deposits of INR10m or more.600 1. This bodes well for the bank. certificates of deposits and inter-bank borrowings). ICICI Bank has relied on wholesale borrowing in the last few years to fund its loan growth. 17 BNP PARIBAS 29 . BNP Paribas estimates Given its operating history as a project finance institution not allowed to take public deposits.5 9. had a maturity of one year or less. as we expect interest rates to ease through FY09. institutional borrowing.1 9.VIJAY SARATHI ICICI BANK ICICIBC IN 13 MARCH 2008 When we analyze the maturity profile of the deposit base as of March 2007. which increased at a marginal CAGR of 3.400 1.2 9. representing approximately 57% of the total deposit base as of March 2007.65% over 2005 to 2007. BNP Paribas estimates As the interest-rate regime tightened between 2005 and 2007. We believe the bank will enjoy improved net interest margins as these bulk deposits mature and are refinanced in a relatively lower interest-rate environment.4 9. Exhibit 30: Domestic Market Borrowing (INR b) 350 345 340 335 330 325 320 315 310 305 FY05 Market borrowing (LHS) Average cost (RHS) (%) 9.3 9.000 800 600 400 200 0 Savings accounts Time deposits < 1 year 1-3 years Deposit maturity > 3 years Sources: ICICI Bank. Exhibit 29: Maturity Profile Of Interest Bearing Deposits (INR b) 1.
While this strategy has served it well in the past. A large part of this increase was from foreign commercial borrowing. BNP Paribas To take advantage of the interest-rate advantage offered by foreign credit markets over the same period. within the scope offered by RBI’s ECB restrictions. As a proportion of total average liabilities. commercial foreign-currency borrowing increased from 5. the recent turmoil in the international credit markets have caused its borrowing costs (over LIBOR) to widen. Exhibit 32: Borrowing Mix For ICICI Bank (INR b) RBI/ interbank borrowings (LHS) Domestic borrowings from Govt and institutions (LHS) Domestic debt instruments (LHS) Overseas borrowing (LHS) Overseas borrowing/ total debt ratio (RHS) Cost of borrowing (RHS) Domestic debt/total debt ratio (RHS) (%) 450 400 350 300 250 200 150 100 50 0 FY02 100 80 60 40 20 0 FY03 FY04 FY05 FY06 FY07 Sources: ICICI Bank. Softer rate regime should benefit a wholesale borrower like ICICI Bank Taking advantage of the easy liquidity conditions in the international markets. which increased at a CAGR of 88% over 2005-2007.12% during FY05-07. We believe the bank’s blended funding strategy. ICICI Bank increased its foreign-market borrowing by about 72%. allowed ICICI to be nimble and take advantage of the relative interest cost differential. ICICI Bank dramatically increased its ECB borrowing between FY04 and FY07.VIJAY SARATHI ICICI BANK ICICIBC IN 13 MARCH 2008 Exhibit 31: Maturity Profile Of Term Deposits (INR b) 600 500 400 300 200 100 0 < 3 months 3-6 months 6-12 months Term maturity > 12 months Sources: ICICI Bank. We believe the relative cost advantage for ICICI (foreign borrowing compared with domestic borrowing) to have remained in place. We believe the expected relaxation of interest rates in India (and globally) will continue to benefit the interest margins of ICICI Bank.62% to 9. previously biased towards market borrowing and bulk deposits. BNP Paribas 18 BNP PARIBAS 30 .
repo rate hikes and other mechanisms. Exhibit 33: Interest Rate Movements (%) 40 35 30 25 20 15 10 5 0 Mar-02 WPI growth (LHS) Bank credit growth (LHS) Cash reserve ratio (RHS) M3 growth (LHS) Repo rate (RHS) Fed fund rate (RHS) (%) 9 8 7 6 5 4 3 2 1 A bout of monetary tightening in recent times through repo-rate and CRR hikes have moderated money supply and credit growth from the 30% levels to the early 20% levels Jan-03 Nov-03 Sep-04 Jul-05 May-06 Mar-07 0 Jan-08 Sources: CMIE. we have modeled for a net NIM expansion of 40bp from these factors and an expansion in EPS of 22% by FY10. RBI. BNP Paribas Overall. 19 BNP PARIBAS 31 . We expect interest rates in Indian to ease over the next few quarters and this should further boost the bank’s net interest margins. Interest rates in India have increased significantly over this period as illustrated here.VIJAY SARATHI ICICI BANK ICICIBC IN 13 MARCH 2008 Softening interest rate regime likely to be a further fillip RBI has tightened domestic liquidity conditions over the last 15-18 months through cash reserve ratio increases.
On the credit derivatives front. BNP Paribas estimates Exposure to the global sub-prime crisis ICICI Bank’s primary exposure to the ever deteriorating global credit crisis is through its fixed income investment and credit derivatives book.0 0. 20 BNP PARIBAS 32 .500 3.000 500 0 FY03 FY04 FY05 Total loan assets (LHS) Gross NPA/assets (RHS) (%) 10 9 8 7 6 5 4 3 2 1 0 FY06 FY07 FY08E FY09E FY10E Sources: ICICI Bank. The fixed income portfolio at the international subsidiaries in the UK and Canada is resulting from all the direct banking deposits currently being routed into investments.5 2.000 2.VIJAY SARATHI ICICI BANK ICICIBC IN 13 MARCH 2008 INVESTMENT THESIS: ASSET QUALITY Improving asset quality over the years Exhibit 34: Asset Quality (INR b) 3. where the underlying credit is Indian/Asian corporates.5 0. the exposure is largely through collateralized debt obligations (CDO) and credit linked notes. According to the prevailing regulation in these countries. with a gross NPA ratio in the 2. maintaining a phenomenal 34% CAGR.500 2.0 1. We have summarized the relevant exposure below as per the latest available information.000 1. Exhibit 35: Provision For Bad & Doubtful Debt (INR b) 25 20 15 10 5 0 (5) FY03 FY04 Provisions for bad & doubtful assets (LHS) Provisions/total loan assets (RHS) (%) 2. BNP Paribas estimates ICICI Bank has steadily improved the quality of its loan book over the past few years.7% range.5) FY05 FY06 FY07 FY08E FY09E FY10E Sources: ICICI Bank.500 1. ICICI’s banking subsidiaries can start credit operations after a sufficient stabilization is achieved on the deposit side.5 1.0 (0. We believe the bank will maintain a healthy asset book over the next two years.
Exhibit 37: Provision For Diminution In Value Of Investments (INR b) 18 16 14 12 10 8 6 4 2 0 (2) FY03 FY04 Provision for investments (LHS) Provision/investment assets (RHS) (%) 1. 65% is blue chip Indian credit and we see negligible credit impact from them.8 0.4 0.4 1.0 0. ICICI’s rural loan book was INR90b at the end of December 2007 and we estimate ICICI’s potential share of this loan waiver package to be about INR5b. we do not see a material impact to our positive thesis on ICICI Bank.600 600 3. Overall.2 1.700 FY08 exp MTM loss (USD m) 125 35 108 The MTM (marked-to-market) losses are primarily on account of the widening credit spreads and as per the available information there are no concerns around the underlying credit. CLN Fixed Income Principal amount (USD m) 1. BNP Paribas estimates No material impact from agriculture loan waivers In the recent budget on 29 February 2008. However. a bulk of these instruments have residual maturity of three to four years and there could be MTM write back if the credit spread situation improves over a period of time. we are factoring in INR13b (USD325m) for FY09 and INR15. we believe the loan exposure of SCBs to be INR120b and the rest being shared by cooperative banks and regional rural banks.8b (USD395m) for FY10. In terms of our investment value reserve provision assumptions.0 (0.VIJAY SARATHI ICICI BANK ICICIBC IN 13 MARCH 2008 Exhibit 36: Exposure To Subprime Entity Parent Bank International Subsidiaries International Subsidiaries Sources: ICICI Bank. We expect the global credit situation to remain volatile over the medium term and it is likely that there could be more MTM losses.2) FY05 FY06 FY07 FY08E FY09E FY10E Sources: ICICI Bank. there are strong indications that the banks will be compensated by the government for these loan waivers. BNP Paribas estimates Type of exposure CDO. The package would apply to all the agriculture loans made till March 2007 and due as of December 2007. With respect to the underlying credit. CLN CDO. Of this total waiver package. we do not see a material impact to our FY08 estimates from these MTM losses.2 0. However. 21 BNP PARIBAS 33 .6 0. the finance minister announced a loan waiver package to the tune of INR600b. In terms of our estimates.
4. especially in the retail lending portfolio. We expect a policy level interest rate cut of 50bp from the Reserve Bank of India over the next few quarters. the central bank could maintain the status quo on this front. Prolonged dependence on wholesale deposits. An inability to improve the funding mix in favour of low cost deposits could hamper the bank’s ability to improve its net interest margins in line with the competition. there is very little data available currently to assess the extent of credit related risk in the investment book. Non-performing assets could increase as a proportion of the loan book as the bank focuses on increasing its non-collateralized lending book in the form of personal loans and credit cards and from the general aging of the current loan book. weighed in by the ‘un-factored’ inflation in a pre-election year. we believe a delay in softening of interest rates is a likely risk. Investment book related mark downs from the core bank and in the international banking subsidiaries is a clear near to medium term risk. 2. however. NSE. Though we believe there is a strong case for a softer interest-rate regime. Exhibit 1. Continued volatility in the international credit markets where ICICI Bank is an active borrower could hamper the interest margins in the future. will cause the net interest margins for the bank to be volatile and could result in some loss of market share. Historically ICICI Bank has been a wholesale-funded institution. 22 BNP PARIBAS 34 . Over the past few months. risk spreads for the bank’s paper have widened significantly as illustrated in Exhibit 38.VIJAY SARATHI ICICI BANK ICICIBC IN 13 MARCH 2008 APPENDIX 1 Devil’s advocate: Risks to our investment case We see the following risks to our investment thesis: 1. We expect more MTM mark downs in the future and any negative surprises with respect to credit related write downs will clearly lead to more negative market sentiment for the bank. 5. While a spread related marked-to-market write down need not be an overriding concern. If interest rates do not soften for an extended period of time. ICICI Bank could face sluggish growth in its retail portfolio. 3. In the short term. which has worked to its advantage in the low-interest regime globally in the past few years.1: CDS Spread (Basis points) 350 300 250 200 150 100 50 0 Mar-08 May-08 Jul-08 Sep-08 Dec-08 Feb-09 Sources: RBI. BNP Paribas Regulatory risk in the form of branch network expansion delays in India and abroad is another possible investment risk.
Exhibit 2.08b for the nine months ended 31 December 2007. Handles global treasury.4: Revenue Breakdown – FY07 Core banking ICICI BANK Asset management 3% 51% Asset management – Prudential Asset Management Insurance premium 8% Net interest income 44% 100% International banking – ICICI Bank UK – ICICI Bank Canada – ICICI Bank Eurasia 74% Insurance – Prudential Life Insurance – Lombard General Insurance Securities 4% Banking treasury income 10% Banking fee income 31% 100% Retail NBFC – ICICI Home Finance 100% Brokerage and I-banking – ICICI Securities 100% Private equity – ICICI venture Source: ICICI Bank Sources: ICICI Bank. Past experience includes a stint with Asian Development Bank during 1988-1996. ICICI Bank is second amongst all the companies listed on the Indian stock exchanges in terms of free float market capitalisation.5: Company Background ICICI Bank has spearheaded the retail financial services revolution in India.767b (USD96b) at 21 December 2007 and profit after tax of INR30.2: Shareholding Pattern – As Of December 2007 ADR/GDR 30% Mutual funds 6% Insurance companies 11% Individuals 7% Corporates 5% FIIs 41% Source: ICICI Bank Sources: NSE. BNP Paribas Exhibit 2. risk management and legal functions.VIJAY SARATHI ICICI BANK ICICIBC IN 13 MARCH 2008 APPENDIX 2 Key company information Exhibit 2. ICICI Bank is India's second-largest bank with total assets of INR3.1: Management Background K V Kamath. principal investments & trading. The Bank has a network of about 955 branches and 3. MD.3: Company Structure – As Of December 2007 Exhibit 2. JMD and CFO: Has been with ICICI since 1984.687 ATMs in India and presence in 17 countries Source: ICICI Bank 23 BNP PARIBAS 35 . BNP Paribas Exhibit 2. Chanda Kochhar. CEO: CEO of ICICI since 1996.
2 (3.8 52.504 23.976 (19.665 (22.689) 80.9 53.744 11.254 4.762) 125.2 9.823) (39.6) 1.9 39.387 4.31 21.8 35.09 40.1 (4.309 7.56 7.563 (23.8 16.67 49.16 1.069 58.7 29.205) (7.947 208.70 2.0 33.40 2010E 458.061 (95.05 2.69 7.593) (671) 36.3 (3.231 (21.401 32.COE (%) ROA (%) RORWA (%) * Pre exceptional.756 3.6 19.069 65.809 88.807 8.069 65.6) 1.565) 25.281) 101.8 34. 20% CAGR in fee income from FY08 to FY10 for consolidated bank EPS expansion of 22% from FY08 to FY10 Net interest margin expansion of 40bp 24 BNP PARIBAS 36 .744 (21.8 48.375) (82.3 9.19 1.007) (91.480 36.2 14.3 2.4 50.244 59.VIJAY SARATHI ICICI BANK ICICIBC IN 13 MARCH 2008 FINANCIAL STATEMENTS ICICI Bank Profit and Loss (INR m) Year Ending March Interest income Interest expense Net interest income Net fees & commission Foreign exchange trading income Securities trading income Dividend income Other income Non interest income Total income Staff costs Other operating costs Operating costs Pre provision operating profit Provisions for bad and doubtful debts Other provisons Operating profit Recurring non operating income Associates Goodwill amortisation Non recurring items Profit before tax Tax Profit after tax Minority interests Preferred dividends Other items Reported net profit Non recurring items & goodwill (net) Recurring net profit Per share (INR) Recurring EPS * Reported EPS DPS Growth Net interest income (%) Non interest income (%) Pre provision operating profit (%) Operating profit (%) Reported net profit (%) Recurring EPS (%) Reported EPS (%) Income breakdown Net interest income (%) Net fees & commission (%) Foreign exchange trading income (%) Securities trading income (%) Dividend income (%) Other income (%) Operating performance Gross interest yield (%) Cost of funds (%) Net interest spread (%) Net interest margin (%) Cost/income (%) Cost/assets (%) Effective tax rate (%) Dividend payout on recurring profit (%) ROE (%) ROE .9 22.529 63.309) 126.966 30.071 4.231 86.5 5.25 2008E 311.1 21.1 17.26 50.202 (281.2 2.469 (332.401 25.8 5.2 28.896 (10.49 16.481 54.906) 58.13 58.481 48.214 106.966 (5.019 3.8 12.738 69.480 (5.18 1.74 2.6 9.673 (238.4 7.173) (13.4 31.1 44.8 9.7 1.550) (15.3 24.754) (124.845 124.916) (105.15 2.2 11.102 34.884 (7.5 26.3 40.5) 1.017 (20.974) 47.70 7.5 22.96 23.2 12.21 1.4 8.106) 69.64 34.0 5.84 10.599 2.1 13.102 31.3 48.9 41.6 (1.102 54.851) 103.7 17.0 13.8 3.4 19.20 38.160 84.58 1.4 33.58 50.782) 86.257) 54.314) (60.935) (77.8 4.6 3.144) 73.650 (16.9 4.012) 38.3 24.136 163.0 30.591 15.98 2.655 9.0 37.5 9.58 53.161) 65.49 9.58 56.04 1.6 18.0 39.947) 29 30.868 (27.2) 1.58 10.85 5.9 13.276) 43.21 2.37 2009E 383. BNP Paribas estimates 2006A 143.731 41.738) (66.943 (163.401 25.15 39.2 52.324 (33.189) (50.102 31.15 32.48 2007A 229.9 24.7 2.8 51.738 (15.585) 66.26 2.292 125.102 (10.39 18.4 19.8) 1.4 (2.39 15.71 65.7 7.3 1.358 43.43 2.087 30.18 19.481 54. pre-goodwill and fully diluted Sources: ICICI Bank.67 48.9 23.485 4.27 24.671 3.65 2.4 1.8 2.826 43.7 17.167) (50.39 Net interest income CAGR of 31% from FY08 to FY10 15% growth in fee income for core bank.378) 31.5 2.922 74.95 6.826 39.6 9.7 4.8 22.322 19.5 29.164 250.9 29.7 27.97 14.140 90.3 7.826 43.1 3.24 14.668) 54.
948 3.114 5.285 4.575 164.807 39.1 3.0 2.976.2 20.862 22% growth in overall deposits backed by 27% growth in CASA deposits 2.030 429.4 11.989.684.4 2.0 7.581 4.219 512.511.8 49.5 65.5 Dividend yield (%) 1.114 3.487 687.1 3.3 40.584 385.8 2.4 24.5 19.6 21.398 12.631 1.328.264.867 4.2 13.1 2.620 213.091.2 7.569.436 497.007.486 4.1 15.511.39 18.745 673.116 555.2 2.6 15.0 10.08 284.620 541.8 36.684.560 816.424 76.226 2.0 3.2 2008E 22.32 272.923 5.5 100.711.126 14.056 512.958.330 3.147.37 496.7% by FY10 Valuation 2006A 2007A 25.930 3.5 11.2 17.39 457.483.508 126.7 16.018 455.2 19.0 12.4 21.08 57.729 238.411 39.513.327 487.6 2.0 83.963 278.2 19.7 2.461.8 32.0 272.824 441.179 204.8 40.279 382.75 424.1 39.500) (64.960 625.0 9.213 422.1 2010E 15.8 Recurring P/E (x) * 27.989.0 26.3 1.6 25.6 2.8 100.746 12.1 15.9 Reported P/E (x) 27.260 291.857 2.1 7.2 2.395 3.761.4 29.3 3.3 9.2 85.8 100.682 874.700 767.102 2.8 1.139 461.5 85.260 252.513.259.896 306.142.2 1.842 2.0 81.3 5.0 79.5 1.188 52.823.955.856 3.873.650.0 22.350 2.424) (76.260 966.033 3.7 1.VIJAY SARATHI ICICI BANK ICICIBC IN 13 MARCH 2008 Balance Sheet (INR m) Year Ending March Gross customer loans Total provisions Interest in suspense Net customer loans Bank loans Government securities Trading securities Investment securities Cash & equivalents Other interest earning assets Tangible fixed assets Associates Goodwill Other intangible assets Other assets Total assets Customer deposits Bank deposits Other interest bearing liabilities Non interest bearing liabilities Hybrid capital Total liabilities Share capital Reserves Total equity Minority interests Total liabilities & equity Supplementary items Risk weighted assets (RWA) Average interest earning assets Average interest bearing liabilities Tier 1 capital Total capital Gross non performing loans (NPL) Per share (INR) Book value per share Tangible book value per share Growth Gross customer loans (%) Average interest earning assets (%) Total assets (%) Risk weighted assets (%) Customer deposits (%) Leverage & capital measures Customer loans/deposits (%) Equity/assets (%) Tangible equity/assets (%) RWA/assets (%) Tier 1 CAR (%) Total CAR (%) Asset quality Change in NPL (%) NPL/gross loans (%) Total provisions/gross loans (%) Total provisions/NPL (%) 2006A 2007A 2008E 2009E 2010E 18% CAGR in net loans for core bank and 20% CAGR for consolidated bank 1.446.0 496.779 284.832 2.698 2.426.726.671 3.899 214.199.500 64.286 187.8 2.862 1.235.1 9.0 85.778 3.520 367.7 25.430 338.7 2.0 Capital Adequacy ratio to remain well above the stipulated 12% NPA-Loan ratio of 2.8 2.680 348.1 Price/book (x) 3. BNP Paribas estimates 25 BNP PARIBAS 37 .305.0 39.8 2.902 2.288.202 191.312.0 10.6 21.368 2.234 48.3 15.0 424.093.620 14. pre-goodwill and fully diluted Sources: ICICI Bank.0 457.1 Price/tangible book (x) 3.9 21.166.779) 1.156 2.650.6 1.820 215.270.130.9 37.3 85.7 100.7 118.633 476.6 44.8) 1.748 225.588 56.786 1.483 1.446.801 88.0 9.0 9.3 2009E 18.2 10.3 (19.6 85.024.867 22.4 11.899.890 3.2 84.656 2.313.0 * Pre exceptional.8 Recurring P/E @ target price (x) * 43.801) (88.0 18.130.4 100.581 4.890 3.9 1.940 2.565 5.32 35.226 48.740 231.560 246.389 170.772 4.434.446 1.5 9.497 5.493 14.804 (22.9 54.274 2.923 5.1 19.736 5.162 234.472 3.024.75 16.4 88.654.383 1.869 684.025 510.867 3.37 17.301 1.8 19.369 278.085.226) (48.786 546.1 Price/tangible book @ target price (x) 5.402 371.
email@example.com Amit Shah Oil & Gas BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1664 firstname.lastname@example.org@asia.sukhija@asia.Telecom (Associate) BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1675 kunal.com Vishal Sharma Infrastructure .email@example.com 26 BNP PARIBAS 38 .d.bnpparibas. CFA Financial Services BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1677 vijay.mathew@asia.Telecom BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1674 sameer.com Charanjit Singh Capital Goods/Cement (Associate) BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1686 firstname.lastname@example.org Karan Gupta Metals & Mining (Associate) BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1662 email@example.com@asia.bnpparibas.com Sriram Somayajula Utilities (Associate) BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1670 sriram.bnpparibas.bnpparibas.IT (Associate) BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1685 avinash.com Avneesh Sukhija Real Estate (Associate) BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1667 avneesh.com Joseph George Consumer BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1669 firstname.lastname@example.org Alok Deshpande Oil & Gas (Associate) BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1663 alok.com Manish Gupta Consumer (Associate) BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1668 manish.bnpparibas.com Avinash Singh Tech .com Sandeep Mathew Real Estate BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1665 sandeep.com Abhishek Bhattacharya Financial Services (Associate) BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1678 abhishek.com Vijay Sarathi.email@example.com Shashank Abhisheik Infrastructure .firstname.lastname@example.org@asia.bnpparibas.bnpparibas.chakravarty@asia.IT BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1684 email@example.com@asia.com Lakshminarayana Ganti Capital Goods/Cement BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1676 firstname.lastname@example.org Preeti Dubey.E&C (Associate) BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1673 shashank.E&C BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1672 vishal.bnpparibas.bnpparibas.com Kunal Vora Tech . CFA Metals & Mining BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1671 preeti.bnpparibas.com Sameer Naringrekar Tech .com Girish Nair Utilities BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1679 girish.bnpparibas.a.gupta@asia.VIJAY SARATHI ICICI BANK ICICIBC IN 13 MARCH 2008 India Research Team Praveen Chakravarty Head of India Research BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1696 email@example.com Abhiram Eleswarapu Tech .firstname.lastname@example.org@asia.
it is possible that future price volatility may cause a temporary mismatch between upside/downside for a stock based on market price and the formal recommendation. If the upside is 10% or more. By accepting this report. In most cases. directly or indirectly. However. neither improving nor deteriorating. which we define as (target price* . broker-dealer to major U. In addition. a branch of BNP Paribas. if the analyst doesn't think the market will reassess the stock over the specified time horizon due to a lack of events or catalysts. the recommendation is BUY. This report is being distributed in the United Kingdom by BNP Paribas London Branch to persons who are not private customers as defined under U.K. NEUTRAL – Sector coverage universe fundamentals are steady. therefore. No representation or warranty. institutional investors. securities regulations.S.VIJAY SARATHI ICICI BANK ICICIBC IN 13 MARCH 2008 DISCLAIMERS & DISCLOSURES This report was produced by a member company of the BNP Paribas Group (“Group”).S. This report is being distributed in the United States by BNP Paribas Securities Corporation to U. Distribution or publication of this report in any other places to persons which are not permitted under the applicable laws or regulations of such places is strictly prohibited. Persons as defined under U. is made that such information or opinions is accurate. express or implied. BNP Paribas Securities Corporation accepts responsibility for the contents of this report only where the report has been distributed by it to U. securities regulations or by a member of the Group that is not registered as a U. these recommendations are set with a 12-month horizon. 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The information contained in this report has been obtained from public sources believed to be reliable and the opinions contained herein are expressions of belief based on such information. is a broker-dealer registered with the Securities and Exchange Commission. is regulated by the Financial Services Authority for the conduct of its designated investment business in the U.S. a subsidiary of BNP Paribas. Any reference to past performance should not be taken as an indication of future performance. which are our most commercial and/or actionable BUY and REDUCE calls and are limited to at most five key buys and five key sells in each market at any point in time. BNP Paribas London Branch. If the downside is 10% or more. recipients. UNDERWEIGHT – Sector coverage universe fundamentals are deteriorating. is regulated by the Securities and Futures Commission for the conduct of dealing in securities and advising on securities. Information and opinions contained in this report are published for reference of the recipients and are not to be relied upon as authoritative or without the recipient’s own independent verification or taken in substitution for the exercise of judgement by the recipient. the recipient agrees to be bound by the terms and limitations set out herein. BNP Paribas Securities Corporation. This report is prepared for professional investors and is being distributed in Hong Kong by BNP Paribas Securities (Asia) Limited to persons whose business involves the acquisition. *In most cases. then the target price may differ from fair value. whether as principal or agent. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy or sell any securities or other investments. Stock recommendations are based on absolute upside (downside). the recommendation is HOLD. the recommendation is REDUCE. Recommendation structure All share prices are as at market close on 7 March 2008 unless otherwise stated. a subsidiary of BNP Paribas. the target price will equal the analyst's assessment of the current fair value of the stock. related to the specific recommendation or views expressed herein. All opinions contained herein constitute the views of the analyst(s) named in this report. No member company of the Group accepts any liability whatsoever for any direct or consequential loss arising from any use of the materials contained in this report.S. we have key buy and key sell lists in each market. Thus. Sector recommendations are based on: OVERWEIGHT – Sector coverage universe fundamentals are improving.S. © 2008 BNP Paribas Group 27 BNP PARIBAS 39 . our recommendation is an assessment of the mismatch between current market price and our assessment of current fair value. they are subject to change without notice and are not intended to provide the sole basis of any evaluation of the subject securities and companies mentioned in this report. disposal or holding of securities. is.
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