ICICI Bank (BOM:532174)

The Bank's Balance Sheet transformation, changed business strategy and strong franchise and leadership (Top-3 position) in not just Banking, but largely all its major Financial Services businesses, represent substantial value.

The Bank had a total of 955 branches at the end of 3QFY2008. The Bank has added almost 500 branches since then and an additional 580 additions are planned in the coming year. The Bank's Capital Adequacy is also amongst the highest at 15.5%, with a substantial 11.8% Tier 1 capital.

Meanwhile, the Bank has largely exited all its businesses outside its core competency including small-ticket personal loans in the Domestic Segment and most non-India related exposures in its International business, focusing again on replacing wholesale funds with retail deposits in the international subsidiaries as well.

Including subsidiaries, at Rs678, the stock is trading at 15.0x FY2011E EPS of Rs45.2 and 1.5x FY2011E ABV of Rs460.6. I suggest Buy on the stock, with a Target Price of Rs879, implying an upside of 29%.

Indian banking sector is set to explode in next 5 years on the backing of increasing consumer base and industrial growth. ICICI bank is the best bet in this sector. This bank is in too lucrative a region, has too many good aspects to its story (especially moving ahead internationally) and has a lack of any real creative competition from other Indian banks to not rise up from the current smackdown.

The bank (ADR: IBN), as a leading Indian lender, is considering acquisitions to expand outside its home market, the International Herald Tribune reported. The bank has about $5 billion cash on hand to spend on an international expansion. Targets could include consumer banks in Britain, Canada or Germany, Sonjoy Chatterjee, the executive director responsible for the bank’s international business unit told the Tribune.

ICICI Bank offers numerous and diverse products and services in the areas of commercial banking to retail and corporate customers in India and nineteen foreign countries. A branch opened in New York City last week. ICICI offers treasury and investment banking and other products like life insurance and asset management. Other operations for retail customers consist of lending and deposits, private banking, distribution of third-party investment products and other fee-based products and services. IBN also issues unsecured redeemable bonds.

The commercial division provides standard services that create diverse revenue streams. To keep the socialist government less contentious, ICICI has willingly opened locations in rural and inner urban areas of India, providing micro loans and banking service access for some of the poorest of India's citizens - not really profitable but politically astute.

ICICIBANK Investing + Short-term Pick

ICICI bank is a huge financial conglomerate in India spanning across all financial services. It is India's second-largest bank (after SBI) with total assets of Rs. 3,849.70 billion (US$ 82 billion) at September 30, 2008 and profit after tax Rs. 17.42 billion for the half year ended September 30, 2008. The Bank has a network of about 1,400 branches and 4,530 ATMs in India and presence in 18 countries. ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through a variety of delivery channels and through its specialised subsidiaries and affiliates in the areas of investment banking (ICICI Securities), life (ICICI Prudential) and non-life (ICICI Lombard) insurance, venture capital (ICICI Ventures) and asset management (ICICI Pru AMC). The Bank currently has subsidiaries in the United Kingdom, Russia and Canada, branches in United States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar and Dubai International Finance Centre and representative offices in United Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Our UK subsidiary has established branches in Belgium and Germany. ICICI Bank fell largely on account of various rumours in recent past but the management has time and again came out and stressed about strength of company's fundamentals. Its CAR (Capital Adequacy Ratio) rose to 14% in first half of FY09 from 13.4% at the end of FY07. ICICI Bank currently holds 74% stake in each of ICICI Life and ICICI General Insurance, it has 51% of ICICI AMC stake.ICICI Life holds 29% market share in private insurance and overall 9% share. ICICI General has around 36% share in private sector and 13% overall. Both of these are the largest private insurers in India and ICICI AMC (market share around 12%) is among the largest Mutual Funds in India. These subsidiaries are expected to add a lot of value to the bank. ICICI Bank CMP 410 The stock looks to have bottomed out now and can be bought around 390-400 with for target 500-520 in 2-3 months time.

ICICI Bank offers numerous and diverse products and services in the areas of commercial banking to retail and corporate customers in India and nineteen foreign countries. A branch opened in New York City last week. ICICI offers treasury and investment banking and other products like life insurance and asset management. Other operations for retail customers consist of lending and deposits, private banking, distribution of third-party investment products and other fee-based products and services. IBN also issues unsecured redeemable bonds.

The commercial division provides standard services that create diverse revenue streams. To keep the socialist government less contentious, ICICI has willingly opened locations in rural and inner urban areas of India, providing micro loans and banking service access for some of the poorest of India's citizens - not really profitable but politically astute.

Besides the core banking business which is growing at a fast clip, ICICI Bank has embedded value from various subsidiaries in its fold. Each of these subsidiaries was created to diversify into strategic, new areas of opportunity within the overall Financial Services market. ICICI's subsidiary businesses include ICICI Securities (broking), ICICI Ventures (venture capital/private equity), ICICI Lombard (general insurance), ICICI Prudential Life (life insurance), ICICI Home Finance, ICICI Prudential AMC (mutual funds). ICICI has announced its intent to take these entities to the IPO market, at the right opportunity. Several of these subsidiaries are market leaders in their own segments, and have high growth rates. This represents significant embedded value in ICICI Bank's business, which would get 'unlocked' and give significant upside to existing shareholders. In Apr-Jun 08 period, Merrill Lynch and Credit Suisse analysts published estimates that this embedded value accounts for around 35-40% of IBN's price.