Buy ICICI Bank; target of Rs 1225: Merrill Lynch

Buy ICICI Bank; target of Rs 1225: Merrill Lynch

Merrill Lynch is bullish on ICICI Bank and has recommended buy rating
on the stock with a target of Rs 1225.

Merrill Lynch report on ICICI Bank:

FIPB gives approval to IBank's Financial Services Co

ICICI Bank obtained the FIPB (foreign investment promotion board)
approval for   selling upto 24% stake in its financial services
company to foreign investors. The   proposed finco (still subject to
RBI approval) would be the holding company for its life insurance,
general insurance and asset management businesses.

Finco approval positive for valuations

Ibank had earlier proposed sale of 5.9% stake in finco to few
investors (subject to   approvals) for Rs26.5bn. This values the finco
at US$11bn and the 3 businesses   at US$15bn. We estimate life
insurance valued at around US$11.5bn; general   insurance at US$2.5bn
and asset management at US$1bn. This is equivalent to   Rs408/share of
IBank, 23% premium over our estimate (Rs383/shr). The approval   is
very positive for valuations and could provide benchmarks for the
subsidiaries.

Reiterate Buy; PO of Rs 1225

We reiterate our Buy on IBank, trading at 1.0x FY09E adj. book
(deducting subs   value of Rs383/sh; not raised) and believe it can
trade up to 1.8x FY09E book   given rising value of subs; forecast net
profit growth of 35% in FY09, net NPL's at <1.2% through FY10 after
factoring in NPL uptick. This underpins our PO of Rs 1225 (USD 56 on
ADR). Sharp rise in NPL's is the risk to our PO.

CDO, Yen borrowing concerns overdone

Moreover, we believe concerns on the CDO and Yen exposures are
overdone.   Impact of CDO exposure (US$1.5bn) on bark's earnings is
3-3.5% of its earnings   (offset by the leverage on its treasury
book). Further, it has no exposure to the US   sub-prime markets.
Further, all its yen borrowings are fully hedged.