Kotak Institutional Equities upgrades ICICI Bank to ‘buy’ from 'add'

MUMBAI: Kotak Institutional Equities has upgraded ICICI Bank to ‘Buy’ from ‘Add’ earlier as the recent correction gives comfort from a valuation perspective. It has left the target price unchanged at Rs 1,260 per share.

“We upgrade ICICI Bank to 'Buy' from 'Add' (no change in earnings or target price). Post the recent price correction, the bank is trading at attractive valuations with the core bank trading at ~1.6X FY2014E book. Our target price is Rs 1,260, valuing the bank at 2.0X FY2014E book (adjusted) and 18X FY2014E EPS. We expect ROEs of 12 per cent over FY2013-15E, but earnings growth is likely to be muted on the back of rising credit costs,” the report said.

Analysts at Kotak remain cautious on the bank’s asset quality despite an impressive performance on loan delinquencies over the past few quarters.

“We note that the bank should be able to maintain its NPLs at current levels as it can write off a higher share of NPLs from its retail book (90 per cent coverage). However, we remain fairly conservative and factor credit costs at 1.0-1.2 per cent over FY2014-15E,” the report added.

Inefficient capital deployment and weak medium-term earnings are key risks for the stock, they said.


ICICI Bank has slipped nearly 11 per cent so far in the year 2013 as compared to 66 per cent gain in the year 2012. The BSE Banking index has also taken a hit of 11 per cent as compared to 4.3 per cent fall in the S&P BSE Sensex as on Thursday, March 28. “RoEs (core) are unlikely to improve greater than 14% in the medium term as the bank is likely to see higher credit costs while lending spreads are at elevated levels. We are unsure if the current growth in earnings can be sustained in the current macro conditions,” the repot said.

At 09:50 a.m.; the stock was at Rs 1,013, down 0.79 per cent, on the BSE. It touched a high of Rs 1,025 and a low of Rs 1,010.75 in trade today.