Monetisation of gains on stake in subsidiaries helped mobilise Rs31bn — that may abate risk of dilution. Valuations are attractive at 1.4x FY21 adj. PB and it is among our top-picks in sector.
ICICI offers a favourable risk reward with receding asset quality risks (fall in moratorium loans & lower share of unsecured/SME loans) and ability to grow loans with market share gains from bonds/NBFCs as it leverages deposit franchise. Monetisation of gains on stake in subsidiaries helped mobilise Rs31bn — that may abate risk of dilution. Valuations are attractive at 1.4x FY21 adj. PB and it is among our top-picks in sector.
Receding moratorium levels to give comfort on asset quality. We believe that the concerns on asset quality of the bank should recede with potential decline in loans under moratorium (30% in May-20) during the second phase — as discussed in our notes (Covid Tracker for Financials #6 and Indian Banks: Sensitivity to the Slippage from Moratorium Book). We also see lower risk from the SME and unsecured businesses due to lower share in loans (than peers) and focus on the prime-retail/better-SME client. On the corporate book, bank had demonst-rated derisking of domestic corporate book, although recent slippages in overseas loans surprised us negatively. We have factored in slippages rising c.80% YOY in FY21 and staying elevated in FY22 as well. While we see limited risks to these estimates, our sensitivity analysis shows that a 500bps higher slip-page from moratorium loans (30% of lo-ans) can impact FY22 earnings by 12%.
Strong deposit franchise will position for growth. ICICI Bank should be among the prime beneficiaries of gravitation of retail as well as commercial deposits to larger banks. This should reflect in stronger deposit growth for the bank over 1HFY20 and will position it well to gain market share from bonds as well as NBFCs. We reiterate ICICI Bank among our top picks in financials with target price of Rs 460 (raised from Rs 450) based on 1.7x FY22 adjusted PB.