Goldman Sachs on ICICI Bank,
Key takeaways from the annual reports on international subsidiaries: (1) profit was up in FY10 due to: (a) lower provisions, (b) MTM benefits, (2) UK loan book grew 23%, while Canada and Eurasia declined 6% and 33%, (3) spreads reduced on higher funding costs and lower investment yields. In our view, spreads in international subs appear to be close to the bottom, but slower asset build up will likely continue to impact these subs.
We lower our FY11E-FY13E EPS for ICICI Bank by 10%/7%/6%, respectively, to factor in: (1) lower NII as its margin expansion will likely be limited on
rising bulk borrowings cost, (2) higher expenses as the bank expands branches (over and above Bank of Rajasthan’s (BoR) 427 in FY2011 and 400 in FY2012) and retail lending, (3) estimates for BoR, and (4) FY10 numbers from ICICI group’s and BoR’s annual reports.
We lower our 12-m SOTP-based TP to Rs925, from Rs935, to reflect earnings revision, higher book values for subs, and equity capital on BoR merger.