>ICICI Bank (GS)

ICICI reported net profit of Rs10 bn, slightly ahead of Reuters consensus and 10% above our expectations. Improved cost-to-income ratio of 43%, NIM of 2.4% and CASA of 30% boosted the reported performance. Cautious lending caused a slowdown in loan growth to 7%, which was 4% lower than our estimate. Net NPA increased by 9 bp to 1.83%. 1HFY09 accounted for 46% of our full-year NPAT estimates. There was a significant slowdown in the life insurance business, which reported growth of only 4% yoy in NBP compared with consistent above-40% growth in the previous three quarters.
Analysis
We expect slower loan growth in the short term till the market stabilizes
due to funding constraints as well as a sustained high level of credit costs, which will likely remain challenging. Deterioration in credit quality would likely cause the bank loan loss reserve ratio to rise going forward. In our view, improved productivity/efficiency in its operations, as well as targeted measures for cost control could partly offset these concerns. We believe that the life insurance business faces growth headwinds in the near term due to tougher capital market conditions. Given the recent sell-off, value appears to be emerging but the stock lacks catalysts, in our view. We note that monetizing strategic investments is likely going to be difficult given
the current market conditions.
Implications
At the current price, the stock appears to be largely pricing in downside to medium-term growth expectations, as the stock is trading at 0.71X FY09E P/B vs. 1.71X for its Indian bank peer group. Given the headwinds to revenue and profit from a material slowdown we anticipate in the short term, we are placing our estimates, target price and rating under review.

To read full Report ICICI Bank (GS)