Target-A-Year

ICICI Bank
CMP: Rs 881

Target 1: Rs 1,275
Target 2: Rs 1,305

Current Quote of ICICI

There is a strong chance or shall I say psychological sentiment in the market that may drive this stock under pressure in the near term. but I believe the stock, trading at 1.5 times FY08E adjusted book (after deducting value of subsidiaries; 1.1x FY09 adjusted book) could trade at 1.8-2.0 times adjusted book one-year forward (FY09 estimated), given the improved visibility of earnings are likely to be seen in the coming quarters, estimated earnings growth of +35% in FY09E, and rising value of its subsidiaries.

ICICI Bank appears to be a long term story with an aggressive growth strategy that would now focus on the country's poor on the one end and overseas operations on the other, apart from the traditional segments like urban retail and corporate banking. Over the next two years, the bank should be able to achieve an asset growth of 28 per cent and profits some 35 per cent, according to estimates.

Despite the accelerated growth if anyone is complaining it is because ICICI Bank has been knocking at the capital market more often than its peers thus earnings a lower return on equity (ROE). Much to the dismay of analysts, ICICI Bank raised roughly Rs 10,000 crore (Rs 100 billion) over the past three years.

The pertinent question is whether ICICI Financial Services' current valuations would be sustained when the company goes for listing about 12-24 months from now. Otherwise, investors may not realize the value made out to be built into the stock. The answer to this question is most likely!

My advice to retailers is that if you can involve money for at least 6 months horizon, do invest in it, you'll get reward. For short term players, downside risk is lower, but you may find a better opportunity to get in. The target price for this stock is 1305.

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