Maintain ‘buy’ on ICICI Bank, target Rs 350: Nomura

ICICI Bank announced the sale of a 6% stake in its life insurance arm at a valuation of Rs 32,500 crore. This comes on the back of a 9% stake sale in its general insurance arm valued at Rs 17,500 crore. Both sales combined will provide ICICI bank with a one-time gain of Rs 3,000 crore. While the valuation of the life insurance business at 2x F15 EV was in line with expectations, the general insurance valuation was higher.

These gains will help offset some of the higher provisioning we expect on the company’s stressed loan portfolio in metals/Infra. While we expect asset-quality pressure to only ease by middle of CY16, we believe the valuation adjusted for stress for ICICI at 1.65x FY17E book is reasonable. Also, such gains from subsidiaries, especially at higher valuations than expected, should aid in early recognition/provisioning of its stressed portfolio.

We estimate ICICI Bank to have a loss given default of Rs 15,000 crore on its total stressed book. These sales provide one-off gains of Rs 3,000 crore and in our view should be used to recognise and provide for some of these stressed loans, especially overseas coal assets. While near-term asset-quality pain will likely remain, our stress test (Rs 150bn of write-off) adjusted valuations 1.65x FY17 book is reasonable and hence we maintain our ‘buy’ rating.

ICICI Bank