Icici Bank

Table of Contents

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Rpt. 13267742 ICICI BANK 2 - 8

19-Mar-2008 JEFFERIES & COMPANY, INC.

- CHATTERJEE, ANINDYA

Rpt. 13260434 ICICI BANK 9 - 12

17-Mar-2008 EDELWEISS CAPITAL LIMITED

- GOYAL, VISHAL, ET AL

Rpt. 13243991 ICICI BANK - INITIATING COVERAGE 13 - 40

13-Mar-2008 BNP PARIBAS SECURITIES (ASIA)

- SARATHI, VIJAY, ET AL

Please see important disclosure information on pages 5 - 7 of this report.

EventWe are downgrading IBN to Underperform with a revised pricetarget of US$29/ADR (INR590/local share). We expect ICICI bank's4QFY2008 earnings to disappoint the market with a 97% YoY, and98% sequential (QoQ) decline in profits, due to significant MTMdeterioration of its overseas investment portfolio.

Key Points• ICICI Bank along with its subsidiaries has significantly increased

balance sheet exposure to global financial markets. On astandalone basis - market-linked global credit exposures top 8.4%of the bank's total investment book - significantly changing thebank's risk profile and balance sheet character from previous yearswhen such exposures were negligible, in our view.

• ICICI Bank may need to provide more than US$300mn in MTMlosses on its US$2.2bn CDO/CDS/CLS exposures in 4QFY2008, inour view, over and above the US$264mn loss provisions alreadyannounced earlier this month.

• The bank has around US$600mn CDO exposure and aroundUS$1.6bn exposure in credit derivatives. Two-thirds of theunderlying securities comprise of overseas bonds of Indiancompanies. The remaining one-third underlying exposure is on USand EU investment grade corporate bonds.

• Our estimates conservatively incorporate the significant valueerosion in global credit markets in Feb./Mar. 2008, and thedeterioration in credit market liquidity with widespread rise in riskaversion.

• Further, the bank's UK and Canada subsidiaries have morethan $4bn combined exposure in Asset Backed Securities (ABS),Prime Mortgage Backed Securities (MBS), Asset BackedCommercial Papers, etc. Losses and provisions on these willadversely impact the bank's consolidated earnings.

• Our revised model also incorporates a modest deceleration in thebank's asset growth - both on domestic and overseas businesses.On the domestic advances we envisage higher delinquencieson personal/farm sector loans. The bank has around INR4.5bn(US$1.1bn) of such loan exposure.

Valuation/RisksOur IBN price target is based on P/B. At our price target the bankwould quote at a marginal discount to the valuation of local stateowned banks and at a considerable (>50%) discount to local privatesector banks, and incorporates the ongoing global value compressionon the financial sector. At our price target of US$29 and INR590, IBNwould quote at 1.3x Mar. 2009 earnings. A rapid recovery in globalfinancial markets poses risks to our bearish call.

March 19, 2008

Financial ServicesConsumer Finance

India

Rating ChangePrice Target ChangeEstimate Change

ICICI Bank (NYSE: IBN)Huge Investment Provisioning to Hurt Earnings:Downgrade to Underperform

Investment SummaryIBN's (Marked-to-Market) MTM losses must have widenedsharply in Feb./Mar., and we see little respite ahead amid continuingnegative global headwinds. ICICI bank's management last weekclarified that the bank had US$2.2bn overseas CDO exposure, andthat the MTM losses were at US$264mn as of Jan. 31, 2008.

Rating: UNDERPERFORMPrevious: BUY

Price: $39.56Price Target: $29.00

Previous: $87.00

ADR Ratio: 2:1

Bloomberg: NYSE: IBN

Market Data52-Week Range: $74.25-$33.67Total Entprs. Value (MM): $33,094.1Market Cap. (MM): $21,659.1Institutional Ownership: 86.2%Shares Out. (MM): 547.5Float (MM): 547.5Avg. Daily Vol.: 2,627,019

Financial Summary

Book Value (MM): $11581.2Book Value/Share: $20.60Net Debt (MM): $11435.0Return on Avg. Equity: 8.6%Net Debt/Capital: 98.7%Dividend Yield: 1.3%Cash & ST Investments (MM): $9,140.0

USD 2006A 2007A 2008E 2009ERev. (MM) 2007.0 2797.0 3709.0 5008.2Prev. -- -- 4284.0 6051.0

EV/Rev. 16.5x 11.8x 8.9x 6.6x

EPSFY Mar 1.45 1.54 1.36 1.21Prev. FY -- -- 2.06 3.03

FY P/E 27.3x 25.7x 29.1x 32.7x

Anindya Chatterjee(212) 284-3490, [email protected]

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Please see important disclosure information on pages 5 - 7 of this report.Anindya Chatterjee , [email protected], (212) 284-3490 Page 2 of 7

Company DescriptionICICI Bank is India's largest bank by market capitalization. It is also the second-largest bank in terms of total assets. Itsparent company ICICI was formed in 1955 at the initiative of the World Bank, the Government of India andrepresentatives of Indian industry. In 1999, ICICI become the first Indian company and the first bank or financialinstitution from non-Japan Asia to be listed on the NYSE. Later in October 2001, ICICI was merged to its subsidiaryICICI Bank. ICICI Bank has a network of about 950 branches and 3,300 ATMs in India and presence in 17 countries.ICICI Bank offers a wide range of banking products and financial services to corporate and retail customers through aspectrum of delivery channels and through its specialized subsidiaries and affiliates in the areas of investment banking,life and non-life insurance, venture capital and asset management.

(NYSE:IBN)

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Table 1: IBN’s Investment Exposure in Overseas Markets (approximate figures)

Amount Investing entity Investment Mode/Vehicle

US$2.2bn ICICI Bank, India US$600mn in CDOs US$1.6bn in CDS/CLS

- 67% in overseas debt instruments of Indian companies

- 33% in debt instruments of US/EU companies, and some in Asian companies

US$3.3bn ICICI Bank, UK US2.4bn in overseas bank bonds, rest invested in ABS, UK Prime MBS (US$600mn)

- 85% invested in A- to AAA category

US$600mn ICICI Bank, Canada 35% in Govt bonds

45% in Bankers Acptance 80mn in Asset Backed CPs Rest in misc. debt securities

Source: Company data; Jefferies Research

Table 2: IBN - Income Statement & Estimate Variance Analysis Income StatementUS$ Million OLDFY2008E NEWFY2008E Variance OLDFY2009F NEWFY2009F VarianceNet interest income 2,001.8 1,471.5 -26% 2,602.4 1,525.5 -41%Fee income 1,663.1 1,630.7 -2% 2,392.4 2,416.4 1%Other non interest income 618.9 606.8 -2% 1,055.8 1,066.4 1%Operating income 4,283.9 3,709.0 -13% 6,050.5 5,008.2 -17%Operating Expenses 1,921.4 1,888.6 -2% 2,430.0 2,449.5 1%Depreciation 162.3 159.1 -2% 188.5 190.4 1%Provisions and Contingencies 784.8 719.3 -8% 1,380.8 1,547.3 12%Total Expense 2,868.5 2,767.1 -4% 3,999.4 4,187.2 5%Operating Profit For The Year 1,415.3 942.0 -33% 2,051.2 821.0 -60%Provision For Taxes 255.7 178.7 -30% 346.4 139.3 -60%Net Income 1,159.6 763.3 -34% 1,704.7 681.7 -60%Earnings per ADR (US$) 2.06 1.36 -34% 3.03 1.21 -60%


Table 3: IBN – Capital raised in 2H2007 Capital raised by IBN in FY2007/08 US$bn Equity Capital - Secondary Offering (Local + ADR): US$6bn - ADR Offering 2.5 Yen denominated loan 1.5 Senior unsecured notes 2.0 US commercial paper 0.5 Total 6.5


(NYSE:IBN)

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Table 4: IBN - Balance Sheet Balance SheetUS$ Million FY2006A FY2007A FY2008E FY2009F

Shareholders Equity 5,092.4 5,490.0 11,581.2 12,855.6 -Capital 279.9 278.1 368.5 394.1 -Reserves And Surplus 4,812.5 5,211.9 11,212.7 12,461.5 Liabilities 51,663.3 71,229.7 92,976.1 128,313.0 -Deposits 37,270.6 51,310.7 67,536.9 93,344.9 growth 67% 38% 0.3 0.4 -Borrowings 10,987.3 15,728.9 20,574.8 28,226.3 growth 18% 43% 0.3 0.4 -Other Liabilities And Provisions 3,405.4 4,190.0 4,864.4 6,741.8 Total Capital And Liabilities 56,755.7 76,719.6 104,557.2 141,168.7

AssetsCash And Balance With Reserve Bank Of India 2,017.1 4,164.1 5,522.3 6,610.5 Balances With Banks And Money At Call And Short Notice1,830.0 4,099.0 3,617.9 6,966.5 Investments 16,153.2 20,313.7 30,391.6 36,404.5 growth 43% 26% 0.5 0.2 Advances 32,999.0 43,599.0 58,745.2 84,402.6 growth 62% 32% 0.3 0.4 Fixed Assets 898.7 873.3 1,027.0 1,166.6 Other Assets 2,857.7 3,670.6 5,253.4 5,618.0 Total Assets 56,755.7 76,719.6 104,557.2 141,168.7 Average Earning Assets (US$ Million) 38,844.9 57,374.7 86,743.2 120,620.1 Book value of ADR (US$) 11.2 12.0 20.6 22.9


Table 5: IBN - Quarterly and Annual Income Statement Income Statement (INRmn) 1QFY2008 2QFY2008 3QFY2008 4QFY2008E FY2008E 1QFY2009F 2QFY2009F 3QFY2009F 4QFY2009F FY2009FIncome Interest Earned 75,661.3 75,164.7 79,117.7 66,668.4 296,612.1 84,004.1 88,586.7 90,507.7 96,922.5 360,021.0

Other Income 17,152.9 20,719.4 24,265.9 26,632.5 88,770.7 25,034.5 31,293.2 35,204.8 37,669.1 129,201.7 -Fee income 14,280.0 14,860.0 17,850.0 17,705.6 64,695.6 19,495.2 20,157.2 23,408.0 26,581.6 89,642.0 -Others 2,872.9 5,859.4 6,415.9 8,926.8 24,075.0 5,539.3 11,136.0 11,796.8 11,087.5 39,559.7

Total Income 92,814.2 95,884.1 103,383.6 93,300.9 385,382.8 109,038.7 119,879.8 125,712.5 134,591.7 489,222.7 Expenditure Interest Expense 58,518.8 57,304.7 59,520.8 62,888.8 303,427.0 67,143.3 70,595.3 78,247.5 87,440.9 303,427.0 Net Interest Income 17,142.5 17,860.0 19,596.9 3,779.6 56,594.1 16,860.8 17,991.4 12,260.2 9,481.7 56,594.1

Operating Expenses 17,527.7 18,150.6 19,681.9 19,567.4 90,871.3 20,157.5 22,281.9 23,366.2 25,065.8 90,871.3 Depreciation and amortisation 1,525.5 1,557.4 1,594.2 1,636.0 7,064.3 1,682.8 1,734.8 1,792.0 1,854.7 7,064.3 Provisions And Contingencies 5,522.7 6,444.9 7,603.4 8,967.0 57,402.8 14,350.7 14,350.7 14,350.7 14,350.7 57,402.8

Total Expenditure 83,094.7 83,457.6 88,400.3 93,059.2 458,765.3 103,334.3 108,962.6 117,756.4 128,712.1 458,765.3 Operating Profit For The Year 9,719.5 12,426.5 14,983.3 241.7 37,371.0 5,704.4 10,917.3 7,956.1 5,879.6 30,457.4 Provision For Taxes 1,968.7 2,400.5 2,681.2 39.0 7,089.4 894.6 1,897.3 1,398.8 977.4 5,168.0 Net Income 7,750.8 10,026.0 12,302.1 202.7 30,281.6 4,809.8 9,020.0 6,557.3 4,902.3 25,289.3 Earning per Share (in Rupees)− Basic 8.61 9.13 11.07 0.18 27.23 4.33 8.11 5.90 4.41 22.74 − Diluted 8.54 9.08 10.99 0.18 26.91 4.27 8.02 5.83 4.36 22.48


(NYSE:IBN)

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ANALYST CERTIFICATIONSI, Anindya Chatterjee, certify that all of the views expressed in this research report accurately reflect my personal views about thesubject security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly,related to the specific recommendations or views expressed in this research report.

Important Disclosures

As is the case with all Jefferies employees, the analyst(s) responsible for the coverage of the financial instrumentsdiscussed in this report receive compensation based in part on the overall performance of the firm, includinginvestment banking income. We seek to update our research as appropriate, but various regulations may prevent usfrom doing so. Aside from certain industry reports published on a periodic basis, the large majority of reports arepublished at irregular intervals as appropriate in the analyst's judgement.

Meanings of Jefferies & Company, Inc, RatingsBuy - Describes stocks that we expect to provide a total return (price appreciation plus yield) of 15% or more within a12-month period.

Hold - Describes stocks that we expect to provide a total return (price appreciation plus yield) of plus or minus 15%within a 12-month period.

Underperform - Describes stocks that we expect to provide a total negative return (price appreciation plus yield) of 15%or more within a 12-month period.

Our focus on mid-capitalization and growth companies implies that many of the companies we cover are typically morevolatile than the overall stock market, which can be amplified for companies with an average stock price consistentlybelow $10. For companies in this category only, the expected total return (price appreciation plus yield) for Buy ratedstocks is 20% or more within a 12-month period. For Hold rated stocks with an average stock price consistently below$10, the expected total return (price appreciation plus yield) is plus or minus 20% within a 12-month period. ForUnderperform rated stocks with an average stock price consistently below $10, the expected total return (priceappreciation plus yield) is minus 20% within a 12-month period.

NR - The investment rating and price target have been temporarily suspended. Such suspensions are in compliancewith applicable regulations and/or Jefferies & Company, Inc. policies.

CS - Coverage Suspended. Jefferies & Company, Inc. has suspended coverage of this company.

NC - Not covered. Jefferies & Company, Inc. does not cover this company.

Restricted - Describes issuers where, in conjunction with Jefferies engagement in certain transactions, company policyor applicable securities regulations prohibit certain types of communications, including investment recommendations.

Monitor - Describes stocks whose company fundamentals and financials are being monitored, and for which nofinancial projections or opinions on the investment merits of the company are provided.

Valuation MethodologyJefferies' methodology for assigning ratings may include the following: market capitalization, maturity, growth/value,volatility and expected total return over the next 12 months. The price targets are based on several methodologies,which may include, but are not restricted to, analyses of market risk, growth rate, revenue stream, discounted cash flow(DCF), EBITDA, EPS, cash flow (CF), free cash flow (FCF), EV/EBITDA, P/E, PE/growth, P/CF, P/FCF, premium(discount)/average group EV/EBITDA, premium (discount)/average group P/E, sum of the parts, net asset value,dividend returns, and return on equity (ROE) over the next 12 months.

Risk which may impede the achievement of our Price TargetThis report was prepared for general circulation and does not provide investment recommendations specific toindividual investors. As such, the financial instruments discussed in this report may not be suitable for all investors andinvestors must make their own investment decisions based upon their specific investment objectives and financialsituation utilizing their own financial advisors as they deem necessary. Past performance of the financial instruments

(NYSE:IBN)

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recommended in this report should not be taken as an indication or guarantee of future results. The price, value of, andincome from, any of the financial instruments mentioned in this report can rise as well as fall and may be affected bychanges in economic, financial and political factors. If a financial instrument is denominated in a currency other thanthe investor's home currency, a change in exchange rates may adversely affect the price of, value of, or incomederived from the financial instrument described in this report. In addition, investors in securities such as ADRs, whosevalues are affected by the currency of the underlying security, effectively assume currency risk.

Q1 Q2 Q3 Q1 Q2 Q3 Q1 Q2 Q30

15

30

45

60

75

2006 2007 2008

07/13/07I:B:$62

01/16/08B:$87

Rating and Price Target History for: ICICI Bank Limited (IBN) as of 03-18-2008

Created by BlueMatrix

Distribution of RatingsIB Serv./Past 12 Mos.

Rating Count Percent Count Percent

BUY [BUY/ SB] 516 60.21 61 11.82

HOLD [HOLD] 321 37.46 25 7.79

SELL [SU/ UNPF] 20 2.33 3 15.00

OTHER DISCLOSURESThis material has been prepared by Jefferies & Company, Inc. a U.S.-registered broker-dealer, employing appropriateexpertise, and in the belief that it is fair and not misleading. The information upon which this material is based wasobtained from sources believed to be reliable, but has not been independently verified, therefore, we do not guaranteeits accuracy. Additional and supporting information is available upon request. This is not an offer or solicitation of anoffer to buy or sell any security or investment. Any opinion or estimates constitute our best judgment as of this date,and are subject to change without notice. Jefferies & Company, Inc. and Jefferies International Limited and theiraffiliates and their respective directors, officers and employees may buy or sell securities mentioned herein as agent orprincipal for their own account.

Additional information for UK and Canadian investorsThis material is approved for distribution in the United Kingdom by Jefferies International Limited which is authorizedand regulated by the Financial Services Authority ("FSA"). While we believe this information and materials upon whichthis information was based are accurate, except for any obligations under the rules of the FSA, we do not guarantee itsaccuracy. This material is intended for use only by persons who have professional experience in matters relating toinvestments falling within Articles 19(5) and 49(2)(a) to (d) of the Financial Services and Markets Act 2000 (FinancialPromotion) Order 2005 (as amended) or to persons to whom it can be otherwise lawfully distributed. For Canadianinvestors, this material is intended for use only by professional or institutional investors. None of the investments orinvestment services mentioned or described herein are available to other persons or to anyone in Canada who is not a"Designated Institution" as defined by the Securities Act (Ontario).

(NYSE:IBN)

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This material does not constitute a personal recommendation or take into account the particular investment objectives,financial situations, or needs of individual clients. Clients should consider whether any advice or recommendation inthis report is suitable for their particular circumstances and, if appropriate, seek professional advice, including taxadvice. The price and value of the investments referred to herein and the income from them may fluctuate. Pastperformance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital mayoccur. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from,certain investments.

Jefferies & Company, Inc. research reports are disseminated and available primarily electronically, and, in some cases,in printed form. Electronic research is simultaneously available to all clients. This report or any portion hereof may notbe reprinted, sold or redistributed without the written consent of Jefferies & Company, Inc. Jefferies InternationalLimited has adopted a conflicts management policy in connection with the preparation and publication of research, thedetails of which are available upon request in writing to: The Compliance Officer, Jefferies International Limited,Vintners Place, 68 Upper Thames Street, London EC4V 3BJ; telephone +44 (0)20 7029 8000; facsimile +44 (0)207029 8010.

© 2008 Jefferies & Company, Inc,

(NYSE:IBN)

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ICICI Bank

1

Prudential Plc declared its full year results for CY07 on March 14, 2008 and reported a

sharp decline in pretax new business achieved profits (NBAP) margins from 23% in CY06

to 12% in CY07 for the Indian operations. ICICI Prudential Life held an unscheduled

conference call to address this wide variance in NBAP margins (pretax) reported by

Prudential Plc for its Indian operations at 13% for CY07 and ICICI Bank (post tax) at 19%

for 9MFY08.

Table 1: New business margins for Prudential’s Asian operations

CY07 CY06

Hong Kong 73 69Korea 37 35

Taiwan 58 55

India 12 23China 50 43

Other 61 72

Weighted average for Asian operations 50 54

New business margins (%)

Source: Prudential Plc

We believe there are three primary reasons for this difference -

Results prepared on the basis of European embedded value principles

Prudential Plc’s CY07 results are prepared on the basis of European embedded value

principles. Accordingly, Prudential Plc has considered a larger part of expenses

incurred in more than doubling its branch network to 1070 and agency force to

238,000 upfront, while calculating margins on new business premiums.

However, ICICI Prudential Life reports NBAP margins on an achieved profit framework

considering steady state long term expense ratio and amortises its branch roll out

expenses, giving their branches time to achieve productivity gains and other benefits.

Generally, insurance companies incur three types of expenses-

1. Expenses to generate the current year’s business (commission etc);

2. Expenses for future business (marketing cost etc);

3. Expenses on branch rollout (establishment expenses). ICICI Prudential Life is

amortising these expenses, while Prudential Plc is accounting for them upfront.

Excerpts from the FY07 results of Prudential Plc (schedule 5)

“The negative expense variances in China and India are primarily a reflection of the expenses for new business being in excess of the target levels factored into the valuation of new business for these operations which are at a relatively early stage of development. On the basis of current plans, the target levels for India and existing China operations are planned to be attained in 2011”

March 17, 2008 Vishal Goyal, CFA +91-22-2286 4370 [email protected] Ajitesh Nair +91-22-4009 4535 [email protected] Reuters : ICBK.BO

Bloomberg : ICICIBC IN Market Data

52-week range (INR) : 1,465 / 719

Share in issue (mn) : 1,112.5

M cap (INR bn/USD mn) : 932.3 / 20,810

Avg. Daily Vol. BSE (‘000) : 3,331.2 Share Holding Pattern (%)

Promoters : 0.0

MFs, FIs & Banks : 16.9

FIIs : 40.0

Others : 43.1

India Equity Research | Banking Event Update

ICICI BANK INR 757

Difference in prudence BUY

Edelweiss Research is also available on Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset.

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ICICI Bank

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As mentioned in Prudential Plc’s report, on the basis of current expansion plans, the

management expects both the reported NBAP margins (12% and 19%) to converge

over three years as the company moves closer to break even.

There is also a difference in economic assumptions used by Prudential Plc and ICICI

Bank (which is in public domain)

Table 2: Difference in economic assumptions

ICICI Bank Impact due to the difference Extent of impact

CY07 CY06

Discount rate 15.8 16.5 13.3 Lower margin for Prudential High

Equity return 12.8 NA 13.3 Lower margin for Prudential Medium

Inflation 5.0 5.5 5.5 Higher margin for Prudential Low

Cash return 8.5 NA 7.0 Higher margin for Prudential Low

Bond return 9.3 10.5 8.0 Higher margin for Prudential Low

New Business Margins 12.0 23.0 19.3

Prudential Inc

Source: Prudential Plc, Company

Increasing proportion of lower margin products

Nearly 4% decline in NBAP margins reported by Prudential Plc in CY07 over CY06 was

on account of revised Insurance regulatory and Development Authority (IRDA) guidelines

for unit linked products and increasing proportion of low-margin products. This was also

the key reason for ICICI Prudential Life reporting a decline in its NBAP margins from 23%

in FY07 to 19% for 9mFY08. The company is planning to sell high-margin health

insurance products aggressively in the coming years.

How does it affect valuations for ICICI Pru Life Insurance?

The difference in reported margins is alarming, and could add further disbelief to the already less

believed number of NBAP margin. Expense overruns would have an impact on the current year

NBAP margin and embedded value (currently not disclosed by Indian companies). Also, due to

shift in product portfolio and ongoing expansion, pressure on margins will continue.

Other highlights

The company is likely to break even in 2011.

The branch network more than doubled to ~1070 branches in the last one year.

Capital infusion of USD 100 mn in Q4FY08.

Concerns on ICICI Bank

Increase in credit spreads on global banks would impact MTM losses of ICICI Bank, more

significantly than anticipated earlier. Investment of ~USD 2 bn from the UK subsidiaries is in

global banks’ debt papers, where spreads have moved up wildly in the last one month. Since

January 2008, the average CDS spreads (5 year) on global banks’ bonds have moved up by

more than 120bps, which is similar to the increase seen in first ten months (April 2007 to

January 2008). Hence, additional MTM losses on the UK subsidiaries’ book can be expected.

Concerns over MTM losses on foreign currency derivatives contracts still persists on the bank.

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ICICI Bank

3

Valuations: SOTP offers upside; near-term headwinds persist

We are revising our fair value estimate of its banking business from INR 875 per share to INR

635 per share due to concerns on MTM losses on credit derivatives and possible losses on

forex derivative products. Our revised SOTP stands at INR 1023 per share on FY09E estimates.

Adjusting for the value of subsidiaries, the stock is currently trading at 1.0x FY09E book and

9.4x FY09E earnings. We are reducing our estimates for the life insurance business from INR

325 per share to INR 279 per share to factor in lower margins and lower premium growth. We

maintain Buy due to attractive valuations, while we anticipate headwinds to limit performance in

the near term.

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ICICI Bank

4 Edelweiss Research is also available on Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset.

Naresh Kothari Co-Head Institutional Equities [email protected] +91 22 2286 4246

Vikas Khemani Co-Head Institutional Equities [email protected] +91 22 2286 4206

Shriram Iyer Head Research [email protected] +91 22 2286 4256

Coverage group(s) of stocks by primary analyst(s): Banking and Financial Services: Allahabad Bank, Axis Bank, Centurion Bank of Punjab, Federal Bank, HDFC Bank, ICICI Bank, IOB, Karnataka Bank, Kotak Mahindra Bank, OBC,

SBI, Yes Bank, IDFC, HDFC, LIC Housing Finance, PNB, Power Finance Corporation, Reliance Capital, SREI Infrastructure Finance, Shriram City

Union, Syndicate Bank and Union Bank.

ICICI Bank Recent Research

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)

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Copyright 2007 Edelweiss Research (Edelweiss Securities Ltd). All rights reserved

Rating Interpretation

Rating Expected to

Buy appreciate more than 20% over a 12-month period

Accumulate appreciate up to 20% over a 12-month period

Reduce depreciate up to 10% over a 12-month period

Sell depreciate more than 10% over a 12-month period

Date Company Title Price (INR) Recos 4-Mar-08 Banking Near term headwinds offset valuations comfort (SOBs) Sector Update 3-Mar-08 BFSI Budget talks; market reacts; Fortnightly 25-Feb-08 HDFC Bank When Harry met Sally…; 1,422 Buy Event Update 18-Feb-08 REC Valuations comfortable; 90-105 Subscribe returns limited; Result Update

Edelweiss Research is also available on Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset.

Distribution of Ratings / Market Cap

Edelweiss Research Coverage Universe

Buy Accumulate Reduce Sell Total

Rating Distribution* 110 49 10 1 190

* 14 stocks under review / 6rating withheld

> 50bn Between 10bn and 50 bn < 10bn

Market Cap (INR) 96 70 24

12

Please see the important notice on the inside back cover.

ICICI Bank ICICIBC IN Vijay Sarathi India Initiation (91 22) 6650 1677 Financials/Banks 13 March 2008 S O W H A T ? T H E B N P P A R I B A S A N G L E S E C T O R : O V E R W E I G H T

Our target price implies an upside of 58% from the current price.

We believe the stock correction in the recent sell off is overdone.

EPS expansion of 22% on 27% growth in corporate loans and 12% growth in retail loans.

Net Profit 09....... INR54.5b Diff from Consensus..(1.5%) Consensus (mean) ........INR55.3b Consensus (momentum) ..........

Target Price . INR1,410.00 Diff from Consensus..(0.4%) Consensus (median) INR1,416.00 Consensus (momentum) .......... Current Price .... INR893.40 Upside/ (Downside)............ 57.8%

BUY Recs in the Market Positive.....................................28 Neutral........................................4 Negative .....................................3 Consensus (momentum) ..........

Sources: Thomson One Analytics; Bloomberg; BNP Paribas estimates

Initiate with a BUY and TP of INR1,410. ICICI’s corporate loan book to grow by 27% over FY08-11 on the back of USD750b outlay of corporate capex. Retail loan book to grow at 12%. EPS to grow 22% and fee incomes 30-40% by FY10. Its impressive balance sheet, scale and loan franchise make it a beneficiary of India’s ongoing economic growth.

Sector bellwether; BUY

Beneficiary of corporate capex and retail boom: BUY We expect an aggregate capital expenditure outlay of USD750b in infrastructure and allied sectors over the next four years. We believe ICICI Bank will translate this corporate capex push into an overall loan growth of 20% over the same period. We anticipate EPS expansion of 22% by FY10 from this expansion in the loan book. While we anticipate a more muted retail loan-book growth in the short-term, as a result of the unfavorable interest-rate regime, we believe ICICI Bank, with a retail book of 60% and impressive management depth is best placed to win the retail and non-metro spending boom anticipated in India. Net interest margin expansion of 40bp in next two years ICICI Bank has increased its low-cost deposit base over FY03-07 by approximately 61%. We expect the low-cost deposit proportion to expand by a further 27% over FY08-10. We anticipate a NIM expansion of 40bp by FY10. On the fee income front, we are modeling for a consolidated CAGR of 20% over FY08-10. We expect securities, asset management and private equity business to increase fee incomes at a CAGR of 30-40% from FY08-10. We also anticipate significant value from its life insurance business over the next three to five years. Valuation – we see significant upside Our 12-month price target for ICICI Bank is INR1,410. For the core bank, we use a three-stage Dividend Discount Model (DDM), to arrive at a price target of INR972. For ICICI’s subsidiaries, we have used relative multiple valuation and we estimate the aggregate subsidiary contribution per share of ICICI Bank will be INR438. This doesn’t include possible value unlocking from the listing of securities division over the next two quarters. Based on our target price for the core bank, it should trade at 16.7x our FY10 EPS estimate and 1.96x our FY10 BV estimate. Global credit problems cause investment mark-downs We expect more investment book-related write downs from the bank arising out of the deteriorating credit spread situation. While this is a near-term risk, we do not anticipate any significant credit quality concerns in the domestic book, especially on the corporate loan front.

Vijay Sarathi, CFA BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1677 [email protected] Abhishek Bhattacharya BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1678 [email protected] Earnings Estimates And Valuation Ratios

YE Mar (INR m) 2007 2008E 2009E 2010E Operating profit 36,480 54,102 69,738 86,231 Reported net profit 31,102 43,826 54,481 65,069 Recurring net profit 31,102 43,826 54,481 65,069 Recurring EPS (INR) 34.64 39.15 48.67 58.13 Rec EPS growth (%) 7.7 13.0 24.3 19.4 Recurring P/E (x) 25.8 22.8 18.4 15.4 Dividend yield (%) 1.1 1.7 1.6 1.9 Price/book (x) 3.3 2.1 2.0 1.8 Price/tangible book (x) 3.3 2.1 2.0 1.8 ROA (%) 1.04 1.16 1.19 1.18 ROE (%) 13.4 12.2 11.1 12.3

Sources: ICICI Bank; BNP Paribas estimates

Share Price Daily vs MSCI

700

900

1,100

1,300

1,500

Mar-07 Jun-07 Sep-07 Dec-07 Mar-08

(INR)

(20)(15)(10)(5)05

(%)ICICI BankRel to MSCI India

Next results/event April 2008 Market cap (USD m) 23,553 12m avg daily turnover (USD m) 123.5 Free float (%) 100 Major shareholder Allamanda Investments (7%) 12m high/low (INR) 1,435.00/803.95 ADR (USD) 43.17 Avg daily turnover (USD m) 3.1 Discount/premium (%) (3.4) Disc/premium vs 52-wk avg (%) (21.0) Source: Datastream/Bloomberg

13

V I J A Y S A R A T H I I C I C I B A N K I C I C I B C I N 1 3 M A R C H 2 0 0 8

2 B N P P A R I B A S

Contents Recommended BUY with TP of INR1,410 ................................................................... 3

Core bank valuation 4

Subsidiary valuation 5

Peer valuation 5

India capital expenditure cycle going up........................................................................ 6

Capex a recipe for a 27% increase in loan book 6

Market leader in retail financial services...................................................................... 10

Modelling a 12% increase in the retail loan book 10

NIM will expand by 40bp by FY10 ............................................................................... 15

Softer rate regime should benefit a wholesale borrower like ICICI Bank 18

Improving asset quality over the years ........................................................................ 20

Exposure to the global sub-prime crisis 20

Appendices.................................................................................................................. 22

1. Devil’s advocate: Risks to our investment case 22

2. Key company information 23

Financial statements – P&L, Balance sheet and cash flow ......................................... 24

Please see India Research Team list on page 26.

14



V A L U A T I O N

Recommended BUY with TP of INR1,410

We believe ICICI Bank is among the best-placed Indian banks to benefit from the next few years’ expected economic expansion for the following reasons:

1. The bank’s strong retail franchise and its deep relationships on the corporate loan front will ensure a robust loan book growth of 20% over the next three years.

2. We project USD750b worth of corporate capital expenditure to happen in the next four years backed by spending in infrastructure and allied areas. We model a corporate loan book growth of 27% as an off-shoot of the capex, which translates into an EPS expansion of 22% by FY10.

3. We expect muted growth of 12% in ICICI Bank’s retail book for FY09 as a result of relatively higher interest rates and steep asset valuations. However, with a strong retail franchise, a scalable technology and operational platform, and an impressive cross-sell network, we believe ICICI Bank is the best possible way to play the India consumer consumption story.

4. The net interest margins for the bank should expand by 40bp by FY10 on the back of increases in low-cost deposit market shares and a more-benign interest rate regime.

5. ICICI Bank’s growing proportion of fee incomes will contribute to the bank increasing revenue faster than its loan book. We anticipate an increase of 20% in its fee income over FY08-10. We expect the core bank to increase its ROE from the current 12.2% to 12.3% by FY10.

We believe ICICI stock has over corrected in the recent market meltdown, and the market has not ascribed the full value implicit in the bank’s subsidiaries. Our target price implies an upside of 58% from the current market price. We have valued the core bank through a three-stage dividend discount model (DDM). We have used appropriate relative valuation multiples for all the subsidiaries.

ICICI Bank has the following stakes in its subsidiary companies:

Exhibit 1: Stake In Subsidiaries

Company Stake (%)ICICI Prudential Asset Management Co & Trust 51ICICI Lombard General Insurance Co 74ICICI Prudential Life Insurance Co 74ICICI Securities 100ICICI Venture 100ICICI Home Finance Ltd 100ICICI Bank UK Ltd 100ICICI Bank Canada Ltd 100ICICI Bank Eurasia Ltd 100Sources: ICICI Bank; BNP Paribas

15



Core bank valuation In our three-stage DDM evaluation of the core bank, some of our key assumptions included:

1. We modelled for income CAGR of 16.3% over FY09-13, followed by a compounded annual increase of 7.5% over FY14-20, and a terminal growth rate of 4%.

2. Our income-development scenarios are based on our assumption of a 8% increase in real GDP until FY13, which we believe will be supported by a 16% increase in broad money supply (M3). We estimate the aggregate-loan growth will be in the range of 16%.

3. We expect ICICI Bank’s core ROE to be 12.3% by FY10.

4. We factored in a cost of equity of 13.55% for ICICI Bank, based on a risk-free rate of 7.5% and an equity risk premium of 5.5%

5. Our dividend payout ratios range from 31% in the first stage to 50-60% in the intermediate phase, with a terminal payout ratio of 67%.

Exhibit 2: Dividend Discount Model

Year-end 31 Mar 2007 2008E 2009E 2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E Terminal

EPS (INR) 34.6 39.2 48.7 58.1 63.8 68.6 73.2 77.7 82.4 87.2 91.8 96.0 100.4 104.9 109.1

DPS (INR) 10.1 15.6 14.2 17.0 22.3 27.4 32.9 38.9 41.2 48.0 50.5 52.8 60.2 63.0 73.1

PV – DPS (INR) 15.6 12.5 13.2 15.2 16.5 17.5 18.1 16.9 17.4 16.1 14.8 14.9 13.7 769.4

Cost of equity (%) 13.6

RFR (%) 7.5

Beta 1.1

Equity risk premium – ERP (%) 5.5

ROE (%) 12.3

Terminal Payout (%) 67.0

Sustainable growth (%) 4.0

PV of cash flows (INR) 202.4

Terminal value (INR) 769.4

Equity value/share (INR) 972

Source: BNP Paribas estimates

Exhibit 3: Sensitivity Analysis – Price to Book Value (FY10)

Core (P/BV) —–——————————Terminal growth rate –———————————WACC 3.50% 3.75% 4.00% 4.25% 4.50%14.25% 1.76 1.80 1.83 1.87 1.9014.00% 1.80 1.84 1.87 1.91 1.9513.75% 1.84 1.88 1.91 1.95 2.0013.50% 1.88 1.92 1.96 2.00 2.0513.25% 1.93 1.96 2.01 2.05 2.1013.00% 1.97 2.01 2.06 2.10 2.1512.75% 2.02 2.06 2.11 2.16 2.21Source: BNP Paribas estimates

16



Subsidiary valuation Exhibit 4: Subsidiary Valuation

Prudential Life Insurance ICICI Venture APE FY10 (INR b) 136.20 Current AUM (INR b) 80APE growth expected (%) 20.00 Target FY10 AUM (INR b) 260Relative Mcap/NPE multiple 2.00 Relative Mcap/AUM multiple (%) 25ICICI stake (%) 74.00 ICICI stake (%) 100

Contribution per ICICI Bank share (INR) 179 Contribution per ICICI Bank share(INR) 57 Lombard General Insurance ICICI Securities Expected FY10 Earnings (INR m) 2.13 Expected FY10 Earnings (INR b) 4.80 Relative P/E (x) 15 Relative P/E(x) 16ICICI stake (%) 74 ICICI stake (%) 100

Contribution per ICICI Bank share (INR) 21 Contribution per ICICI Bank share (INR) 69 ICICI Prudential Asset Management ICICI Bank UK Expected FY10 AUM (INR b) 1,253 Expected FY10 Earnings (INR b) 4.80 Relative Mcap/AUM (%) 7.0 Relative P/E (x) 14ICICI stake (%) 51 Contribution per ICICI Bank share (INR) 60Contribution per ICICI Bank share (INR) 40 Other subsidiaries (INR) 12Total subsidiary value (INR) 438 Source: BNP Paribas estimates

Peer valuation Exhibit 5: Comparison Of Peer Valuation

Company BBG code ——— P/BV ——— –——— P/E ———– FY09E FY10E FY09E FY10E (x) (x) (x) (x)ICICI Bank ICICIBC IN 2.13 1.96 19.97 16.72 Regional peers ICBC 1398 HK 2.62 2.34 14.06 11.73 China Minsheng ‘A’ 600016 CH 3.26 2.76 20.35 16.82 China Merchant Bank ‘H’ 3968 HK 3.80 3.12 16.00 12.83 China Construction Bank ‘H’ 939 HK 2.47 2.17 12.10 10.00 Malayan Banking MAY MK 1.92 1.80 10.60 10.17 Kookmin Bank 060000 KS 1.02 0.92 6.60 6.30 Korea Exchange Bank 004940 KS 1.17 1.09 8.54 8.09 China CITIC Bank 998 HK 1.50 1.35 12.02 9.85 BoC HK Holdings 2388 HK 2.00 1.87 12.14 11.15 Indian banks H D F C Bank Ltd HDFCB IN 3.30 2.83 21.26 16.28 Axis Bank Ltd AXSB IN 2.91 2.35 20.50 14.90 Kotak Mahindra Bank Ltd KMB IN 2.97 2.43 17.36 12.76 State Bank of India SBIN IN 1.79 1.44 11.90 10.25 Punjab National Bank PNB IN 1.22 1.06 7.28 6.07 Bank of India BOI IN 1.43 1.18 6.74 5.55 Bank of Baroda BOB IN 0.96 0.83 6.15 5.21 Canara Bank CBK IN 0.78 0.66 5.32 4.44 Sources: Bloomberg; BNP Paribas estimates

17



I N V E S T M E N T T H E S I S : C O R P O R A T E S C E N A R I O

India capital expenditure cycle going up We expect Indian companies to push an aggregate capital expenditure of USD750b over the next four years, primarily across infrastructure and allied sectors. This represents a CAGR of 25% over the period FY08-11. This is based on our analysis of the top-down and bottom-up trends in corporate capital expenditure cycles over this period.

Exhibit 6: Capex Trend

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

FY08E FY09E FY10E FY11E

(INR b) Utilities Construction & housing Telecom Metal & mining Oil & gas Others


We expect this USD750b capex to translate into USD550b of credit demand, which translates into a 25% CAGR for the corporate loan book of all scheduled commercial banks.

Capex a recipe for a 27% increase in loan book ICICI Bank has deep corporate relationships in this space. Between 2004 and 2007, ICICI Bank’s loans outstanding to core infrastructure and services sectors, such as oil and gas, power, transportation, construction, mining and allied sectors, grew at a CAGR of 27.5%. With a rich history in project financing and deep corporate relationships, we expect ICICI Bank to be able to increase its corporate loan book at a CAGR of 27% over the next few years. As a result, we anticipate an EPS expansion of 22% by FY10 from this loan book growth.

Exhibit 7: EPS Sensitivity To Corporate Loan Growth

Corporate loan growth FY10E EPS EPS expansion (%) (INR) (%) 23 56.34 20.0 25 57.23 20.9 27 58.13 21.9 29 59.04 22.8 31 59.95 23.7


Infrastructure sector- utilities, construction and telecom to account for around 60% of USD750b capex over the next four years

18



In addition to this growth in interest income from corporates, ICICI Bank generates fee income through a number of product lines:

Exhibit 8: Fee Based Products

Retail Bank assurance Mutual fund distribution Foreign exchange transactions and remittances Letters of Credit for SMEs Securities brokerage Share depositary accounts Corporate Syndication Securitization Project finance structuring M&A Letters of credit Cash management and custodial services

Source: ICICI Bank

ICICI Bank is a the preferred partner for a large number of Indian companies that need to raise debt from foreign credit markets in the form of external commercial borrowing (ECB). The aggregate external commercial borrowing by Indian companies increased by a CAGR of 59.1% between 2004-07. We believe ICICI Bank is the preferred lead arranger for a large number of these transactions and that this revenue stream should continue to boost ICICI’s fee income.

Exhibit 9: Aggregate Foreign Commercial Borrowing

0

2

4

6

8

10

12

14

16

18

Mar-04 Mar-05 Mar-06 Mar-07

(USD b)

0

10

20

30

40

50

60

70

80

90External debt (LHS) Growth (RHS) (%)

Sources: CMIE; RBI; BNP Paribas estimates

Exhibit 10: Indian Investment Abroad

0

5

10

15

20

25

30

Mar-04 Mar-05 Mar-06 Mar-07

(USD b)

0

10

20

30

40

50

60

70

80

90Direct investment abroad (LHS) Growth (RHS)

(%)

Sources: CMIE; RBI; BNP Paribas estimates

19



Growth in international banking – a key lever ICICI Bank operates subsidiaries in the UK, Canada and Russia and has branch presence or representative offices in several other regions including the US, China, the Middle East, South Africa, Continental Europe and Southeast Asia. We believe ICICI Bank is currently the best-placed Indian bank to cater to Indian companies’ increasing appetite for international mergers and acquisitions.

ICICI Bank’s three foreign banking subsidiaries in the UK, Canada and Eurasia grew at a phenomenal pace between 2004 and 2007. These subsidiaries’ combined revenue increased at a CAGR of 490% over this period, while the asset base grew at a CAGR of 299%. Currently the UK subsidiary has started retail direct banking business and a majority of the funds are parked in investments, due to regulatory requirements around deposit stabilization.

We believe ICICI’s international banking operations will continue to drive growth and we have modeled for revenue CAGR of 53% FY07-09 and an asset CAGR of 51% over the same period.

Exhibit 11: Assets Growth Of International Banking Subsidiaries

0

100

200

300

400

500

600

700

800

FY04 FY05 FY06 FY07 FY08 FY09E

(INR b)


Exhibit 12: Revenue Growth Of International Banking Subsidiaries

0

5

10

15

20

25

30

35

FY04 FY05 FY06 FY07 FY08 FY09E

(INR b)


ICICI Bank has reined in its cost structure over the last few years as is evident the bank’s gradually improving return on assets. We expect operational costs to increase by 25% over the next two years, on account of the expansion in the number of branches and ATMs.

20



Exhibit 13: ROA vs Cost To Income Ratio

46

48

50

52

54

56

58

FY06 FY07 FY08E FY09E FY10E0.95

1.00

1.05

1.10

1.15

1.20

1.25Cost/income (LHS) ROA (RHS)

(%) (%)


Exhibit 14: Operating Efficiency

0

10

20

30

40

50

60

FY03 FY04 FY05 FY06 FY07 FY08E FY09E FY10E0.0

0.5

1.0

1.5

2.0

2.5

3.0Cost/assets (RHS) Cost/income (LHS)

(%)(%)

Sources: ICICI Bank; BNP Paribas

ROA is expected to rise with lowering of cost-to-income ratio by FY10

21


1 0 B N P P A R I B A S

I N V E S T M E N T T H E S I S : R E T A I L S C E N A R I O

Market leader in retail financial services ICICI Bank is the pioneer of the retail financial services growth in India, expanding its retail loan book by 61% in the past four years. While we see a muted growth in retail financial services in the short term, as a result of prevailing high interest rates, we believe ICICI is among the best-placed banks in India to expand its scale in this segment in the long term.

The current retail exposure for ICICIBC is approximately 62% of its total loan book.

Exhibit 15: Retail Book Composition

0100200300400500600700800900

1,000

FY05 FY06 FY07 FY080

20

40

60

80

100

Two wheeler loans (LHS) Credit cards (LHS)Auto loans (LHS) Other personal loans (LHS)Home loan (LHS) Corporate loans (LHS)Two wheeler market share (RHS) Credit cards market share (RHS)Personal loans market share (RHS) Auto loans market share (RHS)Home loans market share (RHS)

(INR b) (%)

Sources ICICI Bank; BNP Paribas estimates

Modelling a 12% increase in the retail loan book Relatively higher interest rates and steep valuations in the property market have caused the mortgage business of ICICI (comprising 31% of the total loan book) to slow down over the last 15-18 months. We do not anticipate a meaningful turnaround in this situation until FY10. We expect ICICI to grow its retail book by focusing on growth in unsecured personal loans and credit card issuances. An emphasis on unsecured loans could lead to an increase in the NPA levels in the future.

Exhibit 16: Housing Affordability

0

1

2

3

4

5

6

7

8

9

Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07

Affordability Mean home price(INR m)


As the above chart illustrates, since about January 2006, property prices have surpassed the ‘affordability quotient’ for a majority of home buyers in India. In our analysis, we have defined the ‘affordability quotient’ as the net disposable income, capitalized by the prime-lending rate applicable at that point in time.

Composition of retail book: Home loans: 50%; Personal loans: 28%; Auto loans: 13%; Credit cards: 6%

Mean home prices are moving beyond common affordability

22



EPS sensitivity to retail-loan increases Exhibit 14 illustrates the EPS sensitivity to our assumptions about the growth in the bank’s retail loan book.

Exhibit 17: EPS Sensitivity To Growth In Retail Loans

Retail loan growth FY10E EPS EPS expansion (%) (INR) (%) 8 54.85 18.4

10 56.48 20.1 12 58.13 21.9 14 59.8 23.6 16 61.5 25.3


A big player in NRI remittances to India ICICI Bank is a key player in India’s inward foreign currency-remittance business through its internet-based wire transfer remittance facility ‘Money2India’. With approximately 100m non-resident Indians living abroad, the total remittances into India increased 16.5% over the last year, and approximately 9.5% over the last two years. ICICI management estimates it has a 25% market share in this business. We believe ICICI Bank earns a transaction fee worth approximately 15bp in this business. We believe the currency remittance business will be a key contributor to the fee income of ICICI Bank in the coming years.

Exhibit 18: Private Remittances To India

0

2

4

6

8

10

12

Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07

(USD b)

Sources: RBI; CMIE; BNP Paribas

Sufficient management depth to sustain growth in this market Though the retail loan increases are likely to be muted in the near term, we do not see any grave threat to the robust long-term development expected in retail financial services. The low levels of personal debt and deep demand-supply mismatch in sectors like housing will ensure that the development story remains in place. We expect ICICI Bank, with its strong retail franchise and management depth to benefit from these long term growth drivers.

Securitization ICICI Bank securitizes about 10% of its loan book to maintain its disbursal growth rate. The asset pool securitized typically consists of consumer loans.

23



Exhibit 19: Loan Securitization

0

5

10

15

20

25

30

FY05 FY06 FY07

(INR b)

0

5

10

15

20

25

30Book value securitized (LHS)Proportion of applicable loan book (RHS)

(%)


Growth in fee income from banking, asset management & brokerage businesses For the consolidated ICICI Bank, fee income was approximately 38% of total income at the close of FY07. Between 2004 and 2007 fee income recorded a stupendous growth of 73% CAGR. We expect it to grow at 20% CAGR till FY10.

Exhibit 20: Fee Income

0

20

40

60

80

100

120

140

FY02 FY03 FY04 FY05 FY06 FY07 FY08E FY09E FY10E

(INR b)


ICICI’s two asset management subsidiaries – ICICI Ventures (primarily venture capital investments) and ICICI Prudential AMC (which manages a number of mutual funds) have shown impressive growth in their Assets under Management (AUM) in recent times. We expect the venture fund and mutual fund AMC to grow their AUMs by 80% and 41% respectively over FY08-FY10.

24



Exhibit 21: AUM Growth For ICICI Prudential Asset Management

0

200

400

600

800

1,000

1,200

1,400

FY05 FY06 FY07 FY08E FY09E FY10E0

2

4

6

8

10

12

14ICICI AUM (LHS) Market share (RHS)(INR b) (%)


Exhibit 22: AUM Growth For ICICI Venture Fund

0

50

100

150

200

250

300

FY06 FY07 FY08E FY09E FY10E

(INR b)


We also expect ICICI Securities (the brokerage and investment banking subsidiary) to grow its PAT by 44% from FY08 to FY10 backed by 22% growth in its fee income from investment banking operations and 37% growth in its brokerage income from FY08 to FY10.

Market leadership position among the private sector players in insurance space: We expect ICICI’s Insurance arms – Prudential Life Insurance and Lombard General Insurance to benefit from their market leader stature amongst the fast growing private sector pie. We expect Prudential Life to grow its annualized premium equivalent (APE) income at 39% from FY08 to FY10 with a new business adjusted profit (NBAP) margin of 20%. We expect Lombard to show a premium growth of 20% from FY08 to FY10.

25



Exhibit 23: Market Share Hierarchy In Life Insurance

0 10 20 30 40 50 60 70

Kotak Mahindra

Tata AIG

Aviva

Max New York

Birla Sunlife

Reliance Life

HDFC Stndard

SBI Life

Bajaj Allianz

ICICI Prudential Life

LIC

(%)

Sources: IRDA; BNP Paribas

Exhibit 24: Market Share Hierarchy In General Insurance

0 2 4 6 8 10 12 14 16 18 20

Cholamandalam

Royal sundaram

Tata-AIG

IFFCO-Tokio

Reliance General

Bajaj Allianz

ICICI-lombard

United Ins

Oriental Ins

National Insurance

New India

(%)

Sources: IRDA; BNP Paribas

26



I N V E S T M E N T T H E S I S : M A R G I N S

NIM will expand by 40bp by FY10 The Reserve Bank of India (RBI) has approved 450 new deposit-taking branches for ICICI Bank. We expect the bank to have these new branches operational by 3Q09, and we anticipate ICICI will maintain its current deposit efficiency. We expect ICICI to lower its cost of funding as its low-cost deposit base expands.

Bank branch expansion in India is regulated by RBI (the central bank) and banks cannot expand their branch network without RBI’s approval. As low-cost deposits are directly tied to the size of the branch network, the number of branches a bank has, is a key success factor for any bank in India.

While public sector banks (state owned banks) enjoy a pre-eminent position in terms of low-cost deposit base (also called CASA deposits in India – stands for Current Accounts and Savings Accounts), private-sector banks have been increasing their CASA base steadily over the years.

Exhibit 25: CASA Market Share

0 2 4 6 8 10 12 14 16 18 20 22 24 26

FY03

FY04

FY05

FY06

FY07

ICICI Bank Private banks sector

(%)

Sources: CMIE; BNP Paribas

ICICI Bank has expanded its CASA market share by 218% over the period of 2003-2007. The bank’s CASA deposits have grown at a CAGR of 61% over the same period, compared with a growth of 17.1% for public-sector banks, 32.5% for private-sector banks and 29% for foreign banks in India.

ICICI Bank depends on domestic borrowings, overseas borrowings (commercial and multilateral), retail and corporate deposits. On the deposit front, the bank increased its deposit base by a CAGR of 56.8% over FY05-07, backed by a growth of 56% in low-cost CASA deposits and an equally strong growth of 57.1% in time deposits. Within CASA, savings accounts increased faster than current accounts.

27



Exhibit 26: Deposit Break-Up by Type

0200400600800

1,0001,2001,4001,6001,8002,000

FY03 FY04 FY05 FY06 FY07

(INR b)Current Savings Term


Exhibit 27: Deposit Efficiency Of Branches

0100200300400500600700800900

1,000

FY04 FY05 FY06 FY07 FY08E0

500

1,000

1,500

2,000

2,500

3,000

3,500(INR m)No. of branches (LHS) Deposit per branch (RHS)

(No.)


The average cost of deposits for the bank is vulnerable to the interest rate paid on time deposits. Over the period FY05-07 the average cost of deposits for ICICI Bank increased by approximately 2%, primarily driven by a 2.4% increase in the cost of time deposits. We believe this vulnerability will be reduced, as ICICI continues to expand its branch network and increase the CASA portion of its deposits.

Exhibit 28: Cost Of Deposits

0

1

2

3

4

5

6

7

8

FY05 FY06 FY07

Savings accounts Time deposits Average(%)


28



When we analyze the maturity profile of the deposit base as of March 2007, approximately 81% of the relatively expensive interest-bearing deposits have a maturity of less than one year. This bodes well for the bank, as we expect interest rates to ease through FY09.

Exhibit 29: Maturity Profile Of Interest Bearing Deposits

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

< 1 year 1-3 years > 3 yearsDeposit maturity

(INR b)Savings accounts Time deposits


Given its operating history as a project finance institution not allowed to take public deposits, ICICI Bank has relied on wholesale borrowing in the last few years to fund its loan growth.

Exhibit 30: Domestic Market Borrowing

305

310

315

320

325

330

335

340

345

350

FY05 FY06 FY079.0

9.1

9.2

9.3

9.4

9.5Market borrowing (LHS) Average cost (RHS)(INR b) (%)


As the interest-rate regime tightened between 2005 and 2007, ICICI Bank cut back on its domestic market borrowing (primarily bond placements, institutional borrowing, corporate deposits, certificates of deposits and inter-bank borrowings), which increased at a marginal CAGR of 3.65% over 2005 to 2007. 95% of the bulk deposits of INR10m or more, representing approximately 57% of the total deposit base as of March 2007, had a maturity of one year or less. We believe the bank will enjoy improved net interest margins as these bulk deposits mature and are refinanced in a relatively lower interest-rate environment.

29



Exhibit 31: Maturity Profile Of Term Deposits

0

100

200

300

400

500

600

< 3 months 3-6 months 6-12 months > 12 monthsTerm maturity

(INR b)


To take advantage of the interest-rate advantage offered by foreign credit markets over the same period, ICICI Bank increased its foreign-market borrowing by about 72%.

A large part of this increase was from foreign commercial borrowing, which increased at a CAGR of 88% over 2005-2007. As a proportion of total average liabilities, commercial foreign-currency borrowing increased from 5.62% to 9.12% during FY05-07.

We believe the bank’s blended funding strategy, previously biased towards market borrowing and bulk deposits, allowed ICICI to be nimble and take advantage of the relative interest cost differential. We believe the expected relaxation of interest rates in India (and globally) will continue to benefit the interest margins of ICICI Bank.

Softer rate regime should benefit a wholesale borrower like ICICI Bank Taking advantage of the easy liquidity conditions in the international markets, ICICI Bank dramatically increased its ECB borrowing between FY04 and FY07. While this strategy has served it well in the past, the recent turmoil in the international credit markets have caused its borrowing costs (over LIBOR) to widen. We believe the relative cost advantage for ICICI (foreign borrowing compared with domestic borrowing) to have remained in place, within the scope offered by RBI’s ECB restrictions.

Exhibit 32: Borrowing Mix For ICICI Bank

050

100150200250300350400450

FY02 FY03 FY04 FY05 FY06 FY070

20

40

60

80

100

RBI/ interbank borrowings (LHS)Domestic borrowings from Govt and institutions (LHS)Domestic debt instruments (LHS)Overseas borrowing (LHS)Overseas borrowing/ total debt ratio (RHS)Cost of borrowing (RHS)Domestic debt/total debt ratio (RHS)

(%)(INR b)


30



Softening interest rate regime likely to be a further fillip RBI has tightened domestic liquidity conditions over the last 15-18 months through cash reserve ratio increases, repo rate hikes and other mechanisms. Interest rates in India have increased significantly over this period as illustrated here. We expect interest rates in Indian to ease over the next few quarters and this should further boost the bank’s net interest margins.

Exhibit 33: Interest Rate Movements

0

5

10

15

20

25

30

35

40

Mar-02 Jan-03 Nov-03 Sep-04 Jul-05 May-06 Mar-07 Jan-080

1

2

3

4

5

6

7

8

9WPI growth (LHS) M3 growth (LHS)Bank credit growth (LHS) Repo rate (RHS)Cash reserve ratio (RHS) Fed fund rate (RHS)

(%)(%)

Sources: CMIE; RBI; BNP Paribas

Overall, we have modeled for a net NIM expansion of 40bp from these factors and an expansion in EPS of 22% by FY10.

A bout of monetary tightening in recent times through repo-rate and CRR hikes have moderated money supply and credit growth from the 30% levels to the early 20% levels

31



I N V E S T M E N T T H E S I S : A S S E T Q U A L I T Y

Improving asset quality over the years Exhibit 34: Asset Quality

0

500

1,000

1,500

2,000

2,500

3,000

3,500

FY03 FY04 FY05 FY06 FY07 FY08E FY09E FY10E012345678910

Total loan assets (LHS)

Gross NPA/assets (RHS)

(%)(INR b)


ICICI Bank has steadily improved the quality of its loan book over the past few years, maintaining a phenomenal 34% CAGR. We believe the bank will maintain a healthy asset book over the next two years, with a gross NPA ratio in the 2.7% range.

Exhibit 35: Provision For Bad & Doubtful Debt

(5)

0

5

10

15

20

25

FY03 FY04 FY05 FY06 FY07 FY08E FY09E FY10E(0.5)

0.0

0.5

1.0

1.5

2.0

2.5Provisions for bad & doubtful assets (LHS)Provisions/total loan assets (RHS)

(INR b) (%)


Exposure to the global sub-prime crisis ICICI Bank’s primary exposure to the ever deteriorating global credit crisis is through its fixed income investment and credit derivatives book. On the credit derivatives front, the exposure is largely through collateralized debt obligations (CDO) and credit linked notes, where the underlying credit is Indian/Asian corporates. The fixed income portfolio at the international subsidiaries in the UK and Canada is resulting from all the direct banking deposits currently being routed into investments. According to the prevailing regulation in these countries, ICICI’s banking subsidiaries can start credit operations after a sufficient stabilization is achieved on the deposit side. We have summarized the relevant exposure below as per the latest available information.

32



Exhibit 36: Exposure To Subprime

Entity Type of exposure Principal amount FY08 exp MTM loss (USD m) (USD m)Parent Bank CDO, CLN 1,600 125International Subsidiaries CDO, CLN 600 35International Subsidiaries Fixed Income 3,700 108Sources: ICICI Bank; BNP Paribas estimates

The MTM (marked-to-market) losses are primarily on account of the widening credit spreads and as per the available information there are no concerns around the underlying credit. With respect to the underlying credit, 65% is blue chip Indian credit and we see negligible credit impact from them. We expect the global credit situation to remain volatile over the medium term and it is likely that there could be more MTM losses. However, a bulk of these instruments have residual maturity of three to four years and there could be MTM write back if the credit spread situation improves over a period of time. In terms of our estimates, we do not see a material impact to our FY08 estimates from these MTM losses. In terms of our investment value reserve provision assumptions, we are factoring in INR13b (USD325m) for FY09 and INR15.8b (USD395m) for FY10.

Exhibit 37: Provision For Diminution In Value Of Investments

(2)02468

1012141618

FY03 FY04 FY05 FY06 FY07 FY08E FY09E FY10E(0.2)

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4Provision for investments (LHS)

Provision/investment assets (RHS)

(INR b) (%)


No material impact from agriculture loan waivers In the recent budget on 29 February 2008, the finance minister announced a loan waiver package to the tune of INR600b. The package would apply to all the agriculture loans made till March 2007 and due as of December 2007. Of this total waiver package, we believe the loan exposure of SCBs to be INR120b and the rest being shared by cooperative banks and regional rural banks. ICICI’s rural loan book was INR90b at the end of December 2007 and we estimate ICICI’s potential share of this loan waiver package to be about INR5b. However, there are strong indications that the banks will be compensated by the government for these loan waivers. Overall, we do not see a material impact to our positive thesis on ICICI Bank.

33



A P P E N D I X 1

Devil’s advocate: Risks to our investment case We see the following risks to our investment thesis:

1. An inability to improve the funding mix in favour of low cost deposits could hamper the bank’s ability to improve its net interest margins in line with the competition. Historically ICICI Bank has been a wholesale-funded institution, which has worked to its advantage in the low-interest regime globally in the past few years. Prolonged dependence on wholesale deposits, however, will cause the net interest margins for the bank to be volatile and could result in some loss of market share, especially in the retail lending portfolio.

2. In the short term, we believe a delay in softening of interest rates is a likely risk. We expect a policy level interest rate cut of 50bp from the Reserve Bank of India over the next few quarters. Though we believe there is a strong case for a softer interest-rate regime, the central bank could maintain the status quo on this front, weighed in by the ‘un-factored’ inflation in a pre-election year. If interest rates do not soften for an extended period of time, ICICI Bank could face sluggish growth in its retail portfolio.

3. Investment book related mark downs from the core bank and in the international banking subsidiaries is a clear near to medium term risk. While a spread related marked-to-market write down need not be an overriding concern, there is very little data available currently to assess the extent of credit related risk in the investment book. We expect more MTM mark downs in the future and any negative surprises with respect to credit related write downs will clearly lead to more negative market sentiment for the bank.

4. Non-performing assets could increase as a proportion of the loan book as the bank focuses on increasing its non-collateralized lending book in the form of personal loans and credit cards and from the general aging of the current loan book.

5. Continued volatility in the international credit markets where ICICI Bank is an active borrower could hamper the interest margins in the future. Over the past few months, risk spreads for the bank’s paper have widened significantly as illustrated in Exhibit 38.

Exhibit 1.1: CDS Spread

0

50

100

150

200

250

300

350

Mar-08 May-08 Jul-08 Sep-08 Dec-08 Feb-09

(Basis points)

Sources: RBI; NSE; BNP Paribas

Regulatory risk in the form of branch network expansion delays in India and

abroad is another possible investment risk.

34



A P P E N D I X 2

Key company information Exhibit 2.1: Management Background Exhibit 2.2: Shareholding Pattern – As Of December 2007

K V Kamath, MD, CEO: CEO of ICICI since 1996. Past experience includes a stint with Asian Development Bank during 1988-1996. Chanda Kochhar, JMD and CFO: Has been with ICICI since 1984. Handles global treasury, principal investments & trading, risk management and legal functions.

ADR/GDR30%

Individuals7%

Corporates5%

FIIs41%

Mutual funds6% Insurance

companies11%

Source: ICICI Bank

Sources: NSE; BNP Paribas

Exhibit 2.3: Company Structure – As Of December 2007 Exhibit 2.4: Revenue Breakdown – FY07

International banking – ICICI Bank UK – ICICI Bank Canada – ICICI Bank Eurasia

Insurance – Prudential Life Insurance – Lombard General Insurance

Retail NBFC – ICICI Home Finance

Asset management – Prudential Asset Management

51%

100%100%100%

100% 74%

Brokerage and I-banking – ICICI Securities

Core bankingICICI BANK

Private equity – ICICI venture

Securities4%

Insurance premium

8%Asset management

3%

Banking treasury income

10%

Banking fee income

31%

Net interest income

44%

Source: ICICI Bank


Exhibit 2.5: Company Background

ICICI Bank has spearheaded the retail financial services revolution in India. ICICI Bank is India's second-largest bank with total assets of INR3,767b (USD96b) at 21 December 2007 and profit after tax of INR30.08b for the nine months ended 31 December 2007. ICICI Bank is second amongst all the companies listed on the Indian stock exchanges in terms of free float market capitalisation. The Bank has a network of about 955 branches and 3,687 ATMs in India and presence in 17 countries Source: ICICI Bank

35



F I N A N C I A L S T A T E M E N T S

ICICI BankProfit and Loss (INR m)Year Ending March 2006A 2007A 2008E 2009E 2010E Interest income 143,061 229,943 311,673 383,202 458,469Interest expense (95,974) (163,585) (238,144) (281,281) (332,309)Net interest income 47,087 66,358 73,529 101,922 126,160Net fees & commission 30,019 43,309 63,807 74,655 84,744Foreign exchange trading income - - - - -Securities trading income 3,671 7,254 8,599 9,756 11,071Dividend income 3,387 4,485 2,591 3,322 4,504Other income 4,731 4,244 15,140 19,214 23,845Non interest income 41,809 59,292 90,136 106,947 124,164Total income 88,896 125,650 163,665 208,868 250,324Staff costs (10,823) (16,167) (22,314) (27,935) (33,007)Other operating costs (39,189) (50,738) (60,375) (77,916) (91,754)Operating costs (50,012) (66,906) (82,689) (105,851) (124,762)Pre provision operating profit 38,884 58,744 80,976 103,017 125,563Provisions for bad and doubtful debts (7,947) (21,593) (19,205) (20,173) (23,550)Other provisons 29 (671) (7,668) (13,106) (15,782)Operating profit 30,966 36,480 54,102 69,738 86,231Recurring non operating income - - - - -Associates - - - - -Goodwill amortisation - - - - -Non recurring items - - - - -Profit before tax 30,966 36,480 54,102 69,738 86,231Tax (5,565) (5,378) (10,276) (15,257) (21,161)Profit after tax 25,401 31,102 43,826 54,481 65,069Minority interests - - - - -Preferred dividends - - - - -Other items - - - - -Reported net profit 25,401 31,102 43,826 54,481 65,069Non recurring items & goodwill (net) - - - - -Recurring net profit 25,401 31,102 43,826 54,481 65,069

Per share (INR)Recurring EPS * 32.15 34.64 39.15 48.67 58.13Reported EPS 32.49 34.84 39.39 48.97 58.49DPS 9.71 10.09 15.58 14.20 16.96

GrowthNet interest income (%) 65.9 40.9 10.8 38.6 23.8Non interest income (%) 22.4 41.8 52.0 18.7 16.1Pre provision operating profit (%) 31.5 51.1 37.8 27.2 21.9Operating profit (%) 22.5 17.8 48.3 28.9 23.6Reported net profit (%) 26.7 22.4 40.9 24.3 19.4Recurring EPS (%) 17.7 7.7 13.0 24.3 19.4Reported EPS (%) 17.9 7.2 13.1 24.3 19.4

Income breakdownNet interest income (%) 53.0 52.8 44.9 48.8 50.4Net fees & commission (%) 33.8 34.5 39.0 35.7 33.9Foreign exchange trading income (%) - - - - -Securities trading income (%) 4.1 5.8 5.3 4.7 4.4Dividend income (%) 3.8 3.6 1.6 1.6 1.8Other income (%) 5.3 3.4 9.3 9.2 9.5

Operating performanceGross interest yield (%) 7.85 8.95 9.56 9.69 9.70Cost of funds (%) 5.70 6.74 7.58 7.26 7.05Net interest spread (%) 2.15 2.21 1.98 2.43 2.65Net interest margin (%) 2.58 2.58 2.26 2.58 2.67Cost/income (%) 56.3 53.2 50.5 50.7 49.8Cost/assets (%) 2.39 2.24 2.18 2.31 2.27Effective tax rate (%) 18.0 14.7 19.0 21.9 24.5Dividend payout on recurring profit (%) 30.2 29.1 39.8 29.2 29.2ROE (%) 14.6 13.4 12.2 11.1 12.3ROE - COE (%) (1.2) (2.5) (3.6) (4.8) (3.6)ROA (%) 1.21 1.04 1.16 1.19 1.18RORWA (%) 1.48 1.25 1.37 1.40 1.39* Pre exceptional, pre-goodwill and fully diluted


15% growth in fee income for core bank. 20% CAGR in fee income from FY08 to FY10 for consolidated bank

Net interest income CAGR of 31% from FY08 to FY10

Net interest margin expansion of 40bp

EPS expansion of 22% from FY08 to FY10

36



Balance Sheet (INR m)Year Ending March 2006A 2007A 2008E 2009E 2010E Gross customer loans 1,483,857 2,007,156 2,328,698 2,761,472 3,235,804Total provisions (22,226) (48,500) (64,424) (76,801) (88,779)Interest in suspense - - - - -Net customer loans 1,461,631 1,958,656 2,264,274 2,684,671 3,147,025Bank loans - - - - -Government securities 510,745 673,682 874,786 1,093,483 1,312,179Trading securities - - - - -Investment securities 204,729 238,896 306,520 367,824 441,389Cash & equivalents 170,402 371,213 422,786 546,869 684,411Other interest earning assets - - - - -Tangible fixed assets 39,807 39,234 48,188 52,588 56,508Associates - - - - -Goodwill - - - - -Other intangible assets - - - - -Other assets 126,575 164,899 214,369 278,680 348,350Total assets 2,513,890 3,446,581 4,130,923 5,024,114 5,989,862

Customer deposits 1,650,832 2,305,102 2,650,867 3,313,584 3,976,301Bank deposits - - - - -Other interest bearing liabilities 385,219 512,560 816,260 966,260 1,166,260Non interest bearing liabilities 252,279 382,286 187,740 231,902 291,565Hybrid capital - - - - -Total liabilities 2,288,330 3,199,948 3,654,867 4,511,746 5,434,126Share capital 12,398 12,493 14,620 14,620 14,620Reserves 213,162 234,139 461,436 497,748 541,116Total equity 225,560 246,633 476,056 512,368 555,736Minority interests - - - - -Total liabilities & equity 2,513,890 3,446,581 4,130,923 5,024,114 5,989,862

Supplementary itemsRisk weighted assets (RWA) 2,085,940 2,899,930 3,511,285 4,270,497 5,091,383Average interest earning assets 1,823,226 2,569,778 3,259,033 3,955,772 4,726,446Average interest bearing liabilities 1,684,842 2,426,856 3,142,395 3,873,486 4,711,202Tier 1 capital 191,820 215,030 429,018 455,327 487,963Total capital 278,430 338,960 625,487 687,700 767,867Gross non performing loans (NPL) 22,226 48,500 64,424 76,801 88,779

Per share (INR)Book value per share 284.08 272.32 424.75 457.39 496.37Tangible book value per share 284.08 272.32 424.75 457.39 496.37

GrowthGross customer loans (%) 57.6 35.3 16.0 18.6 17.2Average interest earning assets (%) 44.8 40.9 26.8 21.4 19.5Total assets (%) 49.9 37.1 19.9 21.6 19.2Risk weighted assets (%) 54.5 39.0 21.1 21.6 19.2Customer deposits (%) 65.4 39.6 15.0 25.0 20.0

Leverage & capital measuresCustomer loans/deposits (%) 88.5 85.0 85.4 81.0 79.1Equity/assets (%) 9.0 7.2 11.5 10.2 9.3Tangible equity/assets (%) 9.0 7.2 11.5 10.2 9.3RWA/assets (%) 83.0 84.1 85.0 85.0 85.0Tier 1 CAR (%) 9.2 7.4 12.2 10.7 9.6Total CAR (%) 13.3 11.7 17.8 16.1 15.1

Asset quality Change in NPL (%) (19.8) 118.2 32.8 19.2 15.6NPL/gross loans (%) 1.5 2.4 2.8 2.8 2.7Total provisions/gross loans (%) 1.5 2.4 2.8 2.8 2.7Total provisions/NPL (%) 100.0 100.0 100.0 100.0 100.0

Valuation 2006A 2007A 2008E 2009E 2010E Recurring P/E (x) * 27.8 25.8 22.8 18.4 15.4Recurring P/E @ target price (x) * 43.9 40.7 36.0 29.0 24.3Reported P/E (x) 27.5 25.6 22.7 18.2 15.3Dividend yield (%) 1.1 1.1 1.7 1.6 1.9Price/book (x) 3.1 3.3 2.1 2.0 1.8Price/tangible book (x) 3.1 3.3 2.1 2.0 1.8Price/tangible book @ target price (x) 5.0 5.2 3.3 3.1 2.8* Pre exceptional, pre-goodwill and fully diluted


18% CAGR in net loans for core bank and 20% CAGR for consolidated bank

NPA-Loan ratio of 2.7% by FY10

22% growth in overall deposits backed by 27% growth in CASA deposits

Capital Adequacy ratio to remain well above the stipulated 12%

37



India Research Team Praveen Chakravarty Head of India Research BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1696 [email protected]

Preeti Dubey, CFA Metals & Mining BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1671 [email protected]

Karan Gupta Metals & Mining (Associate) BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1662 [email protected]

Vishal Sharma Infrastructure - E&C BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1672 [email protected]

Shashank Abhisheik Infrastructure - E&C (Associate) BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1673 [email protected]

Sandeep Mathew Real Estate BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1665 [email protected]

Avneesh Sukhija Real Estate (Associate) BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1667 [email protected]

Lakshminarayana Ganti Capital Goods/Cement BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1676 [email protected]

Charanjit Singh Capital Goods/Cement (Associate) BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1686 [email protected]

Girish Nair Utilities BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1679 [email protected]

Sriram Somayajula Utilities (Associate) BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1670 [email protected]

Amit Shah Oil & Gas BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1664 [email protected]

Alok Deshpande Oil & Gas (Associate) BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1663 [email protected]

Abhiram Eleswarapu Tech - IT BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1684 [email protected]

Avinash Singh Tech - IT (Associate) BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1685 [email protected]

Sameer Naringrekar Tech - Telecom BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1674 [email protected]

Kunal Vora Tech - Telecom (Associate) BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1675 [email protected]

Vijay Sarathi, CFA Financial Services BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1677 [email protected]

Abhishek Bhattacharya Financial Services (Associate) BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1678 [email protected]

Joseph George Consumer BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1669 [email protected]

Manish Gupta Consumer (Associate) BNP Paribas India Solutions Pvt Ltd (91 22) 6650 1668 [email protected]

38



D I S C L A I M E R S & D I S C L O S U R E S

This report was produced by a member company of the BNP Paribas Group (“Group”). This report is for the use of intended recipients only and may not be reproduced (in whole or in part) or delivered or transmitted to any other person without our prior written consent. By accepting this report, the recipient agrees to be bound by the terms and limitations set out herein.

The information contained in this report has been obtained from public sources believed to be reliable and the opinions contained herein are expressions of belief based on such information. No representation or warranty, express or implied, is made that such information or opinions is accurate, complete or verified and it should not be relied upon as such. This report does not constitute a prospectus or other offering document or an offer or solicitation to buy or sell any securities or other investments. Information and opinions contained in this report are published for reference of the recipients and are not to be relied upon as authoritative or without the recipient’s own independent verification or taken in substitution for the exercise of judgement by the recipient. All opinions contained herein constitute the views of the analyst(s) named in this report, they are subject to change without notice and are not intended to provide the sole basis of any evaluation of the subject securities and companies mentioned in this report. Any reference to past performance should not be taken as an indication of future performance. No member company of the Group accepts any liability whatsoever for any direct or consequential loss arising from any use of the materials contained in this report.

The analyst(s) named in this report certifies that (i) all views expressed in this report accurately reflect the personal views of the analyst(s) with regard to any and all of the subject securities and companies mentioned in this report and (ii) no part of the compensation of the analyst(s) was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed herein.

This report is prepared for professional investors and is being distributed in Hong Kong by BNP Paribas Securities (Asia) Limited to persons whose business involves the acquisition, disposal or holding of securities, whether as principal or agent. BNP Paribas Securities (Asia) Limited, a subsidiary of BNP Paribas, is regulated by the Securities and Futures Commission for the conduct of dealing in securities and advising on securities. This report is being distributed in the United Kingdom by BNP Paribas London Branch to persons who are not private customers as defined under U.K. securities regulations. BNP Paribas London Branch, a branch of BNP Paribas, is regulated by the Financial Services Authority for the conduct of its designated investment business in the U.K. This report is being distributed in the United States by BNP Paribas Securities Corporation to U.S. Persons as defined under U.S. securities regulations or by a member of the Group that is not registered as a U.S. broker-dealer to major U.S. institutional investors. BNP Paribas Securities Corporation, a subsidiary of BNP Paribas, is a broker-dealer registered with the Securities and Exchange Commission. BNP Paribas Securities Corporation accepts responsibility for the contents of this report only where the report has been distributed by it to U.S. recipients.

Distribution or publication of this report in any other places to persons which are not permitted under the applicable laws or regulations of such places is strictly prohibited.

Recommendation structure

All share prices are as at market close on 7 March 2008 unless otherwise stated. Stock recommendations are based on absolute upside (downside), which we define as (target price* - current price) / current price. If the upside is 10% or more, the recommendation is BUY. If the downside is 10% or more, the recommendation is REDUCE. For stocks where the upside or downside is less than 10%, the recommendation is HOLD. In addition, we have key buy and key sell lists in each market, which are our most commercial and/or actionable BUY and REDUCE calls and are limited to at most five key buys and five key sells in each market at any point in time.

Unless otherwise specified, these recommendations are set with a 12-month horizon. Thus, it is possible that future price volatility may cause a temporary mismatch between upside/downside for a stock based on market price and the formal recommendation.

*In most cases, the target price will equal the analyst's assessment of the current fair value of the stock. However, if the analyst doesn't think the market will reassess the stock over the specified time horizon due to a lack of events or catalysts, then the target price may differ from fair value. In most cases, therefore, our recommendation is an assessment of the mismatch between current market price and our assessment of current fair value.

Sector recommendations are based on: OVERWEIGHT – Sector coverage universe fundamentals are improving. NEUTRAL – Sector coverage universe fundamentals are steady, neither improving nor deteriorating. UNDERWEIGHT – Sector coverage universe fundamentals are deteriorating.

© 2008 BNP Paribas Group

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www.equities.bnpparibas.com

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