ICICI Banks 2QFY17 results have been encouraging. While slippages remained
high, large part of that came from the watch list. The bank has utilized part of the
proceeds from stake sale in insurance business towards provisions. Management
commentary also remained optimistic, as no addition is expected to the watch list;
sharp deterioration of the accounts within the watch list is also unlikely. Earnings growth for ICICI Bank is likely to remain under
pressure for the next few quarters, due to elevated slippages and resultant credit
cost. However, the good part is that large part of the slippages has been coming
from the known accounts and hence asset quality after few quarters should
stabilize, which will pave the ways for secular growth FY18 onwards. The stock has
seen quite a run up in the last few months, however we believe as more clarity
emerges on its book the valuation gap of ICICI vs other Pvt Sector banks should
narrow down. At the CMP the stock is trading at 1.4x its FY18E ABV (Excluding
Rs80 for all the subsidiaries). We recommend an Accumulate rating on the stock,
with a revised target price of Rs315.

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