15 October, 2008

ICICI Bank

Cmp: Rs 447.10

Target price: 779

Broking house Edelweiss Securities has reiterated a ‘strong buy’ on the stock saying it has corrected 26% vs 18% for Bankex and the general market correction of 16%. “Current prices seem to be completely ignoring value of subsidiary and moreover implying wild assumptions about asset quality (which appears highly improbable),” said Edelweiss in a note to its clients.

“Even if we make a worse case assumption on all the various possible parameters (none of which is probable), the stock offers substantial value at these levels,” the note said. The broking house asserts that book value (BV) of Rs 417 does not take into account any valuations for the subsidiaries. “If we add subsidiary valuations (of Rs 220 per share in FY09E) to the adjusted BV, the fair value will be 50-75% higher than the current price.

This represents a strong return to investors in the short-term itself,” the Edelweiss note said. The broking outfit expects the bank to post 15%+ CAGR in assets with a buoyant corporate investment pipeline and robust retail asset growth. However, says Edelweiss, main risks for ICICI is NPA (non-performing asset) risk due to its low cumulative provisions. “With 65% of retail asset book, it is vulnerable to system-wide deterioration in the quality of retail assets,” said the note.