>ICICI BANK (MERRILL LYNCH)

■ Reiterate Buy with PO of Rs1050; Delivering on strategy
ICICI Bank’s 2QFY10 results help reinforce our views that the bank is on a path of a strong recovery by focusing on 4C’s (CASA, Costs, Capital, and Credit quality). We believe the “return to growth” from 2HFY10 (pick up infrastructure, auto and mortgage loans), improvement in asset quality (unwinding of credit costs) and focus on profitability could see RoA expanding from greater than 1% in FY09 to 1.5% by FY12. Core RoE of the bank could rise to ~17% by FY12 v/s greater than 11% in FY09. We reiterate our Buy and PO on the stock. Our PO of Rs1050 factors Rs212/shr. for our SOTP for its insurance (losses were Rs0.7bn), AMC, general ins. and broking.

Broad based momentum; Reiterate Buy

■ 2QFY10: Margins, CASA, and asset quality surprise
While ICICI Bank’s 2QFY10 earnings grew only 2.5% yoy (2% below BofAMLe), the bank’s delivered ahead / in line of expectations on CASA (37% v/s 33% in 1Q); NPL formation down at Rs11bn (v/s 14bn); margins at 2.5% (2.4%). Topline was weaker at 5% yoy (2-3% below) owing to 14% yoy loan contraction (4% qoq). Operating costs down 8% yoy (6% below est.). Operating earnings up 18% qoq.

■ Better positioned for growth; est. +30% in FY11-12
We tweak our FY10-12 earnings by greater than 1% as we still factor in high credit costs (owing to RBI’s new norms); but believe asset quality could surprise positively. Earnings still est. to grow at +30% CAGR through FY11-12. Moreover, risks to the earnings growth easing as NPL formation trends down and loan growth likely to pick up. Moreover, expanding branch distribution (+400 in next 6 months) to help support fees and sustain CASA at +34-35%, helping offset likely rise in opex. Also amongst the best capitalized banks with Tier I at +13%.

To read the full report: ICICI BANK