Brokerage plays down ICICI Bank profit concerns

Concerns of lower profit accretion to ICICI Bank from its insurance business was little overdone, said brokerage firm Prabhudas Lilladher today.

ICICI Bank's share price was beaten down by 17 per cent on Monday following concerns of lower profit margin from new business in its life insurance subsidiary, ICICI Prudential, Prabhudas Lilladher said in its report. The stock rose 1.39 per cent today on BSE at Rs 767.95 compared with Monday's close of Rs 757.40.

ICICI Prudential had a conference call with analysts on Monday to clarify the confusion on the premium achieved from new business.

While Prudential UK, the joint venture insurance partner, declared new business achieved premium of 12 per cent for its India operation, ICICI Bank showed it as 19.3 per cent. "ICICI Bank believes this difference is because it has factored lower sustainable costs on productivity and scale benefits in its NBAP estimate.

Prudential, however, has used more conservative assumptions in 2007, even compared with its own 2006 estimates," said Credit Suisse in its report.

Sustained negative news of mark-to-market losses on derivatives exposure globally, slowdown in retail loan growth, possibility of higher defaults and the recent lower premium from new business have pulled down ICICI Bank's stock significantly. The stock had corrected by 30 per cent in March from its 52-week high on January 14, Prabhudas Lilladher said.

"We feel the correction in the stock is overdone and downside risks from the current levels are limited," Prabhudas Lilladher said.

The valuation at 1.5 times FY10 expected book value was very attractive, the brokerage said. It maintained a 'buy' on the ICICI Bank stock.