>ICICI Bank (GOLDMAN SACHS)

Removed from Asia Pacific Conviction Buy List

Off Conviction list, but maintain Buy on still resilient prospects

What happened
We remove ICICI bank (ICICIB) from our Asia Pacific Conviction Buy list as the stock has breached our previous target price. ICICIB’s share price has risen by 22% since we added it to the Conviction Buy list on April 27, 2009 vs. a +7% move by the BSE index. Over last 12m, ICICIB fell by 39% vs. 31% decline for BSE. We reiterate our Buy due to: 1) improving earnings growth prospect; 2) reduced concerns about risk profile of assets; and 3) a mean reversion in its multiples as a result of the strengthening fundamentals. We raise our 12-m TP by 11% to Rs590 on upside to near term as well as long-term growth expectations.

Current view
Our constructive view on ICICIB is based on: 1) reduced stress on funding position from lower wholesale costs domestically and globally; 2) improving visibility on growth returning back to sustainable levels by 2010E; 3) cost reduction measures that would likely put the bank in an
advantageous position when growth returns back to sustainable levels; 4) continued focus on profitability; and 5) a moderate valuation (1.2X 09E P/B vs historic median of 1.6X) despite the run-up in share price since March 2009 lows. While the ROE would likely remain low through 2011E, rising ROA together with increase in leverage brightens the prospect of ROE returning back to historic mean of over 16% in the long-term. We believe this would likely remain as a catalyst for the mean reversion of valuation towards historic P/B median levels of 1.6X. We raise our 2009E/2010E EPS by 7%/5% on higher NIM, lower operating costs and progressively
declining credit costs. We also introduce 2011 estimates. Our 12-m TP of Rs590 is derived using SOTP methodology. We value the banking business at the mid-point of GS CAMELOT-derived P/B multiples and ex-growth value. We value the strategic investments of ICICIB using
multiple methodologies.

To see full report: ICICI BANK