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ICICI Bank Ltd. - ADS (IBN)

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We are upgrading our recommendation on ICICI Bank, Ltd. (IBN) to Outperform based on strong fiscal third quarter (ended December 31) results. Net earnings for the quarter surged 20% year over year, primarily on higher net interest income and fee income. The company's enhanced asset quality and strong capital ratios were the other positives.

We expect continued synergies from the company's increased dependence on domestic loans, an almost stable fund base and market leadership in the insurance business. Our main concerns are about the company's highly competitive operating environment and below-average credit quality.

Our six-month target price of $40.00 per ADS equates to about 19.1x our earnings estimate for fiscal 2012. This target price implies an expected total return of 13.9% over that period. This is consistent with our Outperform recommendation on the ADSs.

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