1. Event Update | Banking
May 18, 2010
ICICI Bank BUY
CMP Rs889
Merger with Bank of Rajasthan Target Price Rs1,169
The Board of Directors of ICICI Bank has granted its in-principle approval for the Investment Period 12 months
amalgamation of Bank of Rajasthan (BoR) with ICICI Bank, subject to further
approvals. The swap ratio has been fixed at 25:118 (25 shares of ICICI Bank for Stock Info
118 shares of BoR). Sector Banking
As on March 31, 2009, Bank of Rajasthan had 463 branches and 111 ATMs, total Market Cap (Rs cr) 99,167
assets of Rs17,224cr, deposits of Rs15,187cr and advances of Rs7,781cr. It reported Beta 1.4
net profit of Rs118cr in FY2009 and net loss of Rs10cr in the 9MFY2010. In our 52 Week High / Low 1010/607
view, the main benefit of the merger for ICICI Bank is BOR's branch network, Avg Daily Volume 1257898
concentrated in northern states like Rajasthan (60% ot total branch network), Punjab,
Face Value (Rs) 10
Haryana and Delhi. Bank of Rajasthan was the only potential acquisition target
BSE Sensex 16,876
amongst the old private sector banks to have such a presence, while all its other
peers have largely branch networks concentrated in the south. Nifty 5,066
Reuters Code ICBK.BO
Outlook and Valuation: Based on the swap ratio, ICICI Bank has valued BoR at
Valuation:
5.3x FY2010E ABV (at an 89% premium to yesterday's closing price), which is Bloomberg Code ICICIBC@IN
expensive in our view, considering the poor profitability and the recent asset-quality
pressures and corporate governance issues with the Bank of Rajasthan. Further, in Shareholding Pattern (%)
such an acquisition, there is downside risk from further NPAs from the target bank's Promoters -
existing loan book. MF / Banks / Indian Fis 27.6
Looking at it from a market cap per branch basis, the acquisition looks less FII / NRIs / OCBs 66.1
expensive. As per our calculations, old private banks are trading at an average Indian Public / Others 6.3
MCap/branch of Rs5.4cr at current prices. Based on the swap ratio announced,
the MCap/Branch paid for BoR works out to Rs6.6cr, which indicates a premium of Abs. (%) 3m 1yr 3yr
21% to the peer average. If we compare the HDFC Bank and CBoP deal in FY2008,
Sensex 3.4 18.1 18.0
HDFC Bank had paid a consideration of Rs24.1cr per branch for CBoP .
ICICI Bank 6.0 25.9 (6.5)
That said, at about 3.2% of ICICI Bank's market cap and 4.5% of Total Assets, in
our view, the acquisition is too small to have any material impact on ICICI Bank.
At the CMP ICICI Bank is trading at 1.5x its FY2012E ABV (excl. subsidiaries)
,
(without factoring the acquisition into our estimates). We maintain a Buy on the
Target Price
stock, with a Target Price of Rs1,169, representing an upside of 31%.
Exhibit 1: Valuations of Old private Banks
Bank Market Capitalisation Branches MCap/Branch
(Rs cr) (No.) (Rs cr)
Bank of Rajasth. 3,039 463 6.6
City Union Bank* 1,326 202 6.6
Dhanalaksh.Bank 944 265 3.6
Vaibhav Agrawal
Federal Bank 5,256 672 7.8
+91 22 4040 3800 Ext: 333
Karnataka Bank 2,033 458 4.4
Email: vaibhav.agrawal@angeltrade.com
Karur Vysya Bank* 2,770 320 8.7
Lak. Vilas Bank 775 270 2.8
Amit Rane
South Ind.Bank 1,645 580 2.8
+91 22 4040 3800 Ext: 326
Average 5.4 Email: amitn.rane@angeltrade.com
Source: Company, Angel Research; Note: *As on March 31, 2009
Please refer to important disclosures at the end of this report

2. ICICI Bank | Event Update
Exhibit 2: Per Branch Analysis - Old Private Banks
(Rs cr) Dena Federal South Ind CBoP* BOR
Bank Bank Bank
Branches (Nos) 1,223 672 580 394 463
Networth 2,434 4,758 1,466 2,080 601
Networth/Branch 2.0 7.1 2.5 5.3 1.3
Mkt Cap 2,646 5,256 1,645 9,510 3,014
Mkt Cap / Branch 2.2 7.8 2.8 24.1 6.6
Deposits 51,344 36,706 18,090 20,700 15,200
Deposits/Branch 42 55 31 53 33
CASA 18,320 8,993 5,339 5,072 4,550
CASA/Branch 15.0 13.4 9.2 12.9 9.9
PAT 511 541 234 103 118#
PAT/branch 0.4 0.8 0.4 0.3 0.3#
Source: Company, Angel Research Note: *CBOP nos. as on 3QFY2008, #FY2009 PAT
Exhibit 3: M&A Deals in Indian Banking Sector
Acquirer Target Consideration No. of Consideration
(Rs cr) Branches Per Branch (Rs cr)
IDBI Bank United Western Bank 150 230 0.6
CBOP Lord Krishna Bank 336 112 3.0
ICICI Bank Sangli Bank 300 198 1.5
HDFC Bank CBOP 9,510 394 24.1
Source: Company, Angel Research
Evaluating branch potential: Keeping aside the risk of further book value erosion
from fresh NPA accretion post-acquisition, even the existing capital adequacy of BOR
is on the lower side. Moreover, in our view, on a higher level of business per branch
(from Rs37cr assets / branch at present to about 50cr), the normalised Networth per
branch would have to be atleast Rs2.5-3.5cr, while BOR's existing Networth per branch
is Rs1.3cr. If we add this additional capital requirement to the acquisition price, then
per branch acquisition price would be about Rs8.8cr (assuming NW / branch of
Rs3.5cr). At this level, BOR's implied P/BV would work out to about 2.5x, not taking
into account the 2-3 years it may take to scale up the productivity of these branches.
Even on this basis, the acquisition looks expensive relative to peers.
Exhibit 4: ICICI Bank & BOR: Key Numbers
FY2010 FY2009 As % of
(Rs cr) ICICI Bank BOR ICICI Bank
Branch Network (No.) 2,000 463 23.2
Total Assets 3,75,839 17,235 4.6
Advances 1,81,206 7,781 4.3
Deposits 2,02,017 15,187 7.5
CASA Ratio (%) 41.7 27.4
Capital Adequacy Ratio (%) 19.4 11.5
Gross NPA Ratio (%)* 5.1 2.8
Gross NPAs* 9,481 232 2.5
Source: Company, Angel Research Note: *As Reported on 31st Dec, 2009 for BOR
May 18, 2010 2

3. ICICI Bank | Event Update
Income Statement (Rs cr) Rs crore Key Ratios
Y/E March FY2009 FY2010E FY2011E FY2012E Y/E March FY2009 FY2010E FY2011E FY2012E
Net Interest Income 9,092 8,114 9,378 11,538 Profitability Ratios (%)
YoY Growth (%) 10.9 (10.8) 15.6 23.0
NIMs 2.6 2.4 2.5 2.5
Other Income 7,783 7,478 8,828 10,731
Cost to Income ratio 41.7 37.6 40.0 42.7
YoY Growth (%) (12.3) (3.9) 18.1 21.6
RoA 0.9 1.0 1.1 1.3
Operating Income 16,875 15,592 18,206 22,269
RoE 9.2 9.6 11.5 15.0
YoY Growth (%) (1.2) (7.6) 16.8 22.3
B/S Ratios (%)
Operating Expenses 7,045 5,860 7,284 9,504
CASA ratio 28.7 41.7 42.7 43.6
YoY Growth (%) (13.6) (16.8) 24.3 30.5
Pre - Provision Profit
Provision Profit 9,830 9,732 10,923 12,766 Credit/Deposit ratio 100.0 89.7 89.7 90.4
YoY Growth (%) 10.1 (1.0) 12.2 16.9 CAR 14.5 19.4 15.5 15.1
Prov. & Cont.
rov. 5,048 4,387 3,961 3,310 - Tier I 11.0 11.7 9.6 8.4
YoY Growth (%) 30.4 (13.1) (9.7) (16.4) Asset Quality (%)
Profit Before Tax
Tax 4,782 5,345 6,962 9,456 Gross NPAs 4.3 5.1 4.5 4.0
YoY Growth (%) (5.4) 11.8 30.2 35.8 Net NPAs 1.6 2.1 1.4 1.1
Prov. for Taxation
rov. Taxation 1,359 1,320 1,961 2,691 Slippages 2.2 2.0 1.9 1.5
as a % of PBT 28.4 24.7 28.2 28.5
NPA prov. / avg. assets 1.0 1.1 0.9 0.6
PAT 3,423 4,025 5,000 6,765
Provision coverage 63.1 59.5 70.6 73.8
YoY Growth (%) (17.7) 17.6 24.2 35.3
Per Share Data (Rs)
EPS 30.7 36.1 44.8 60.7
Balance Sheet Rs crore ABVPS (75% Cover) 434.6 450.3 483.1 518.1
Y/E March FY2009 FY2010E FY2011E FY2012E DPS 11.0 12.0 15.5 21.5
Share Capital 1,463 1,465 1,465 1,465 Valuation Ratios
- Equity 1,113 1,115 1,115 1,115 P/E (x) 28.9 24.6 19.8 14.7
- Preference 350 350 350 350 P/ABVPS (x) 2.0 2.0 1.8 1.7
Reserve & Surplus 48,420 50,573 53,209 56,794 Dividend Yield 1.2 1.3 1.7 2.4
Deposits 218,348 202,017 250,501 310,621 DuPont Analysis
DuPont
Growth (%) (10.7) (7.5) 24.0 24.0 NII 2.4 2.2 2.3 2.3
Borrowings 67,324 77,049 92,746 111,660 (-) Prov. Exp. 1.3 1.2 1.0 0.7
Tier 2 Capital 25,482 29,304 36,337 45,421 Adj. NII 1.1 1.0 1.3 1.7
Other Liab. & Prov. 18,265 15,431 22,079 28,450
Treasury 0.5 0.3 0.2 0.1
Total Liabilities 379,301 375,839 456,336 554,410
Int. Sens. Inc. 1.5 1.3 1.6 1.8
Cash balances 17,536 27,514 17,535 23,297
Other Inc. 1.6 1.6 1.9 1.9
Bank balances 12,430 11,359 13,837 16,860
Op. Inc. 3.1 3.0 3.4 3.8
Investments 103,058 133,332 173,089 200,431
Opex 1.9 1.6 1.8 1.9
Advances 218,311 181,206 224,695 280,869
PBT 1.3 1.4 1.6 1.8
Growth (%) (3.2) (17.0) 24.0 25.0
Taxes 0.4 0.4 0.5 0.5
Fixed Assets 3,802 3,800 4,490 5,307
RoA 0.9 1.0 1.1 1.3
Other Assets 24,164 18,628 22,690 27,647
Leverage 10.1 9.6 10.1 11.8
Total Assets 379,301 375,839 456,336 554,410
Growth (%) (6.3) (0.9) 21.8 21.8 RoE 9.2 9.6 11.5 15.0
May 18, 2010 3

4. ICICI Bank
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Disclosure of Interest Statement ICICI Bank
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock No
3. Angel and its Group companies' Directors ownership of the stock No
4. Broking relationship with company covered No
Note: We have not considered any Exposure below Rs 1 lakh for Angel, its Group companies and Directors.
Ratings (Returns) : Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)
Reduce (-5% to -15%) Sell (< -15%)

5. ICICI Bank
Address: Acme Plaza, ‘A’ Wing, 3rd Floor, M.V. Road, Opp. Sangam Cinema, Andheri (E), Mumbai - 400 059.
Tel : (022) 3952 4568 / 4040 3800
Research Team
Fundamental:
Sarabjit Kour Nangra VP-Research, Pharmaceutical sarabjit@angeltrade.com
Vaibhav Agrawal VP-Research, Banking vaibhav.agrawal@angeltrade.com
Vaishali Jajoo Automobile vaishali.jajoo@angeltrade.com
Shailesh Kanani Infrastructure, Real Estate shailesh.kanani@angeltrade.com
Anand Shah FMCG , Media anand.shah@angeltrade.com
Deepak Pareek Oil & Gas deepak.pareek@angeltrade.com
Puneet Bambha Capital Goods, Engineering puneet.bambha@angeltrade.com
Sushant Dalmia Pharmaceutical sushant.dalmia@angeltrade.com
Rupesh Sankhe Cement, Power rupeshd.sankhe@angeltrade.com
Param Desai Real Estate, Logistics, Shipping paramv.desai@angeltrade.com
Sageraj Bariya Fertiliser, Mid-cap sageraj.bariya@angeltrade.com
Viraj Nadkarni Retail, Hotels, Mid-cap virajm.nadkarni@angeltrade.com
Paresh Jain Metals & Mining pareshn.jain@angeltrade.com
Amit Rane Banking amitn.rane@angeltrade.com
Rahul Jain IT, Telecom rahul.j@angeltrade.com
Jai Sharda Mid-cap jai.sharda@angeltrade.com
Sharan Lillaney Mid-cap sharanb.lillaney@angeltrade.com
Amit Vora Research Associate (Oil & Gas) amit.vora@angeltrade.com
V Srinivasan Research Associate (Cement, Power) v.srinivasan@angeltrade.com
Aniruddha Mate Research Associate (Infra, Real Estate) aniruddha.mate@angeltrade.com
Mihir Salot Research Associate (Logistics, Shipping) mihirr.salot@angeltrade.com
Chitrangda Kapur Research Associate (FMCG, Media) chitrangdar.kapur@angeltrade.com
Vibha Salvi Research Associate (IT, Telecom) vibhas.salvi@angeltrade.com
Pooja Jain Research Associate (Metals & Mining) pooja.j@angeltrade.com
Technicals:
Shardul Kulkarni Sr. Technical Analyst shardul.kulkarni@angeltrade.com
Mileen Vasudeo Technical Analyst vasudeo.kamalakant@angeltrade.com
Derivatives:
Siddarth Bhamre Head - Derivatives siddarth.bhamre@angeltrade.com
Jaya Agarwal Derivative Analyst jaya.agarwal@angeltrade.com
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Institutional Sales Team:
Mayuresh Joshi VP - Institutional Sales mayuresh.joshi@angeltrade.com
Abhimanyu Sofat AVP - Institutional Sales abhimanyu.sofat@angeltrade.com
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Pranav Modi Sr. Manager pranavs.modi@angeltrade.com
Sandeep Jangir Sr. Manager sandeepp.jangir@angeltrade.com
Ganesh Iyer Sr. Manager ganeshb.Iyer@angeltrade.com
Jay Harsora Sr. Dealer jayr.harsora@angeltrade.com
Meenakshi Chavan Dealer meenakshis.chavan@angeltrade.com
Gaurang Tisani Dealer gaurangp.tisani@angeltrade.com
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