Event Update | Banking

May 18, 2010

ICICI Bank
Merger with Bank of Rajasthan
The Board of Directors of ICICI Bank has granted its in-principle approval for the 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 118 shares of BoR). As on March 31, 2009, Bank of Rajasthan had 463 branches and 111 ATMs, total assets of Rs17,224cr, deposits of Rs15,187cr and advances of Rs7,781cr. It reported net profit of Rs118cr in FY2009 and net loss of Rs10cr in the 9MFY2010. In our view, the main benefit of the merger for ICICI Bank is BOR's branch network, concentrated in northern states like Rajasthan (60% ot total branch network), Punjab, Haryana and Delhi. Bank of Rajasthan was the only potential acquisition target amongst the old private sector banks to have such a presence, while all its other peers have largely branch networks concentrated in the south. Valuation: Outlook and Valuation: Based on the swap ratio, ICICI Bank has valued BoR at 5.3x FY2010E ABV (at an 89% premium to yesterday's closing price), which is 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 such an acquisition, there is downside risk from further NPAs from the target bank's existing loan book. Looking at it from a market cap per branch basis, the acquisition looks less expensive. As per our calculations, old private banks are trading at an average 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 21% to the peer average. If we compare the HDFC Bank and CBoP deal in FY2008, HDFC Bank had paid a consideration of Rs24.1cr per branch for CBoP . 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%.

BUY
CMP Target Price
Investment Period
Stock Info
Sector Market Cap (Rs cr) Beta 52 Week High / Low Avg Daily Volume Face Value (Rs) BSE Sensex Nifty Reuters Code Bloomberg Code Banking 99,167 1.4 1010/607 1257898 10 16,876 5,066 ICBK.BO ICICIBC@IN

Rs889 Rs1,169
12 months

Shareholding Pattern (%)

Promoters MF / Banks / Indian Fis FII / NRIs / OCBs Indian Public / Others 27.6 66.1 6.3

Abs. (%)
Sensex ICICI Bank

3m
3.4 6.0

1yr
18.1 25.9

3yr
18.0 (6.5)

Exhibit 1: Valuations of Old private Banks

Bank Market Capitalisation (Rs cr) Bank of Rajasth. City Union Bank* Dhanalaksh.Bank Federal Bank Karnataka Bank Karur Vysya Bank* Lak. Vilas Bank South Ind.Bank Average
Source: Company, Angel Research; Note: *As on March 31, 2009

Branches (No.) 463 202 265 672 458 320 270 580

MCap/Branch (Rs cr) 6.6 6.6 3.6 7.8 4.4 8.7 2.8 2.8 5.4 Vaibhav Agrawal
+91 22 4040 3800 Ext: 333 Email: vaibhav.agrawal@angeltrade.com

3,039 1,326 944 5,256 2,033 2,770 775 1,645

Amit Rane
+91 22 4040 3800 Ext: 326 Email: amitn.rane@angeltrade.com

Please refer to important disclosures at the end of this report

ICICI Bank | Event Update

Exhibit 2: Per Branch Analysis - Old Private Banks

(Rs cr) Branches (Nos) Networth Networth/Branch Mkt Cap Mkt Cap / Branch Deposits Deposits/Branch CASA CASA/Branch PAT PAT/branch Dena Bank 1,223 2,434 2.0 2,646 2.2 51,344 42 18,320 15.0 511 0.4 Federal Bank 672 4,758 7.1 5,256 7.8 36,706 55 8,993 13.4 541 0.8 South Ind Bank 580 1,466 2.5 1,645 2.8 18,090 31 5,339 9.2 234 0.4 394 2,080 5.3 9,510 24.1 20,700 53 5,072 12.9 103 0.3 463 601 1.3 3,014 6.6 15,200 33 4,550 9.9 118# 0.3# CBoP* BOR

Source: Company, Angel Research Note: *CBOP nos. as on 3QFY2008, #FY2009 PAT

Exhibit 3: M&A Deals in Indian Banking Sector

Acquirer IDBI Bank CBOP ICICI Bank HDFC Bank Target Consideration (Rs cr) United Western Bank Lord Krishna Bank Sangli Bank CBOP 150 336 300 9,510 No. of Branches 230 112 198 394 Consideration Per Branch (Rs cr) 0.6 3.0 1.5 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 (Rs cr) Branch Network (No.) Total Assets Advances Deposits CASA Ratio (%) Capital Adequacy Ratio (%) Gross NPA Ratio (%)* Gross NPAs* ICICI Bank 2,000 3,75,839 1,81,206 2,02,017 41.7 19.4 5.1 9,481 FY2009 BOR 463 17,235 7,781 15,187 27.4 11.5 2.8 232 2.5 As % of ICICI Bank 23.2 4.6 4.3 7.5

Source: Company, Angel Research Note: *As Reported on 31st Dec, 2009 for BOR

May 18, 2010

ICICI Bank | Event Update

Income Statement (Rs cr)

Y/E March Net Interest Income YoY Growth (%) Other Income YoY Growth (%) Operating Income YoY Growth (%) Operating Expenses YoY Growth (%) Provision Profit Pre - Provision Profit YoY Growth (%) Prov. & Cont. rov. YoY Growth (%) Tax Profit Before Tax YoY Growth (%) rov. Taxation Prov. for Taxation as a % of PBT PAT YoY Growth (%) 9,092 10.9 7,783 (12.3) 16,875 (1.2) 7,045 (13.6) 9,830 10.1 5,048 30.4 4,782 (5.4) 1,359 28.4 3,423 (17.7) 8,114 (10.8) 7,478 (3.9) 15,592 (7.6) 5,860 (16.8) 9,732 (1.0) 4,387 (13.1) 5,345 11.8 1,320 24.7 4,025 17.6 9,378 15.6 8,828 18.1 18,206 16.8 7,284 24.3 10,923 12.2 3,961 (9.7) 6,962 30.2 1,961 28.2 5,000 24.2

Rs crore
11,538 23.0 10,731 21.6 22,269 22.3 9,504 30.5 12,766 16.9 3,310 (16.4) 9,456 35.8 2,691 28.5 6,765 35.3

Key Ratios
Y/E March Profitability Ratios (%) NIMs Cost to Income ratio RoA RoE B/S Ratios (%) CASA ratio Credit/Deposit ratio CAR - Tier I Asset Quality (%) Gross NPAs Net NPAs Slippages NPA prov. / avg. assets Provision coverage Per Share Data (Rs) EPS 30.7 434.6 11.0 36.1 450.3 12.0 44.8 483.1 15.5 60.7 518.1 21.5 4.3 1.6 2.2 1.0 63.1 5.1 2.1 2.0 1.1 59.5 4.5 1.4 1.9 0.9 70.6 4.0 1.1 1.5 0.6 73.8 28.7 100.0 14.5 11.0 41.7 89.7 19.4 11.7 42.7 89.7 15.5 9.6 43.6 90.4 15.1 8.4 2.6 41.7 0.9 9.2 2.4 37.6 1.0 9.6 2.5 40.0 1.1 11.5 2.5 42.7 1.3 15.0 FY2009 FY2010E FY2011E FY2012E

FY2009 FY2010E FY2011E FY2012E

Balance Sheet
Y/E March Share Capital - Equity - Preference Reserve & Surplus Deposits Growth (%) Borrowings Tier 2 Capital Other Liab. & Prov. Total Liabilities Cash balances Bank balances Investments Advances Growth (%) Fixed Assets Other Assets Total Assets Growth (%) 1,463 1,113 350 48,420 218,348 (10.7) 67,324 25,482 18,265 1,465 1,115 350 50,573 202,017 (7.5) 77,049 29,304 15,431 1,465 1,115 350 53,209 250,501 24.0 92,746 36,337 22,079

Rs crore
FY2009 FY2010E FY2011E FY2012E 1,465 1,115 350 56,794 310,621 24.0 111,660 45,421 28,450

ABVPS (75% Cover) DPS Valuation Ratios P/E (x) P/ABVPS (x) Dividend Yield DuPont DuPont Analysis NII (-) Prov. Exp. Adj. NII Treasury Int. Sens. Inc. Other Inc. Op. Inc. Opex PBT Taxes RoA Leverage RoE

28.9 2.0 1.2

24.6 2.0 1.3

19.8 1.8 1.7

14.7 1.7 2.4

2.4 1.3 1.1 0.5 1.5 1.6 3.1 1.9 1.3 0.4 0.9 10.1 9.2

2.2 1.2 1.0 0.3 1.3 1.6 3.0 1.6 1.4 0.4 1.0 9.6 9.6

2.3 1.0 1.3 0.2 1.6 1.9 3.4 1.8 1.6 0.5 1.1 10.1 11.5

2.3 0.7 1.7 0.1 1.8 1.9 3.8 1.9 1.8 0.5 1.3 11.8 15.0

379,301 375,839 456,336 554,410 17,536 12,430 103,058 218,311 (3.2) 3,802 24,164 27,514 11,359 133,332 181,206 (17.0) 3,800 18,628 17,535 13,837 173,089 224,695 24.0 4,490 22,690 23,297 16,860 200,431 280,869 25.0 5,307 27,647

379,301 375,839 456,336 554,410 (6.3) (0.9) 21.8 21.8

May 18, 2010

ICICI Bank

Disclaimer
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Securities Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, and is for general guidance only. Angel Securities Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Securities Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Securities Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Securities Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section).

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

ICICI Bank No No No No

Note: We have not considered any Exposure below Rs 1 lakh for Angel, its Group companies and Directors.

Ratings (Returns) :

Buy (> 15%) Reduce (-5% to -15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

ICICI Bank

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