Merrill Lynch is bullish on ICICI Bank and has recommended buy rating on the stock with a target of Rs 1225.

FIPB gives approval to IBank’s Financial Services Co

ICICI Bank obtained the FIPB (foreign investment promotion board) approval for selling upto 24% stake in its financial services company to foreign investors. The proposed finco (still subject to RBI approval) would be the holding company for its life insurance, general insurance and asset management businesses.

Finco approval positive for valuations

Ibank had earlier proposed sale of 5.9% stake in finco to few investors (subject to approvals) for Rs26.5bn. This values the finco at US$11bn and the 3 businesses at US$15bn. We estimate life insurance valued at around US$11.5bn; general insurance at US$2.5bn and asset management at US$1bn. This is equivalent to Rs408/share of IBank, 23% premium over our estimate (Rs383/shr). The approval is very positive for valuations and could provide benchmarks for the subsidiaries.

Reiterate Buy; PO of Rs 1225

We reiterate our Buy on IBank, trading at 1.0x FY09E adj. book (deducting subs value of Rs383/sh; not raised) and believe it can trade up to 1.8x FY09E book given rising value of subs; forecast net profit growth of 35% in FY09, net NPL’s at <1.2% style="font-weight: bold;">CDO, Yen borrowing concerns overdone

Moreover, we believe concerns on the CDO and Yen exposures are overdone. Impact of CDO exposure (US$1.5bn) on bark’s earnings is 3-3.5% of its earnings (offset by the leverage on its treasury book). Further, it has no exposure to the US sub-prime markets. Further, all its yen borrowings are fully hedged.