Investors tap into ICICI Bank, shares rise by 9%; without Chanda Kochhar, should you invest?

Today’s trading session began on a very positive note for private lender ICICI Bank, as the bank was the top performer on stock exchanges. This was on the back of Q2FY19 result, where ICICI Bank turned from loss to profit, and lowered its provisions despite rise in gross NPA. This would also be first result of ICICI Bank without iconic chief Chanda Kochhar who had a controversial exit from the lender this month. At around 10:17 hours, the share price of ICICI Bank was trading at Rs 341.10 per piece up by Rs 26.05 or 8.27% on Sensex. However, the bank has touched an intraday high of Rs 342.10 per piece resulting in nearly 9% gain in just few minutes of market opening hours. 

One key positive was that ICICI Bank turned its quarter-on-quarter losses into profit in Q2FY19. ICICI Bank has posted a net profit of Rs 908.88 crore declining by 55.84% compared to net profit of Rs 2,058.19 crore in corresponding period of previous year. Q2FY19 was a profit as against loss of Rs 119.55 crore in Q1FY19. 

The bank made provisions of Rs 3,994.29 crore in Q2FY19, down by 11.30% from Rs 4,502.93 crore in Q2FY18, and also below 33.11% as against Rs 5,971.29 crore in Q1FY19. 

On the other hand, ICICI Bank's gross NPA was at Rs 54,488.96 crore in Q2FY19, higher by 22.48% from Rs 44,488.54 crore in Q2FY18 and up by 1.92% as against Rs 53,464.94 crore in Q1FY19. 

Net interest margin was 3.33% in Q2-2019 compared to 3.19% in Q1-2019.

Coming to today’s stock performance, ICICI Bank has seen nearly Rs 17,000 crore rise in market valuation. At the current market price, the bank has a market cap of Rs 2,19,009.82 crore compared to previous day trading session valuation of Rs 2,02,759.47 crore. 

Should you invest in ICICI Bank? 

Jignesh Shial, Himanshu Taluja and Kushan Parikh analysts at Emkay said, “: With a declining trend in fresh slippages after several quarters (at Rs31.2bn), we believe that the peak of NPA recognition cycle is over now, and the incremental additions to NPAs are expected to stay significantly lower than the previous years. Last quarter, management further provided a list of BB- and below-rated advances which came down to Rs217.9bn (~4.0% of advances) from Rs246.3bn (~4.8% of net advances).”

The trio added, “This also includes non-fund based exposure to existing NPAs. ICICIBC expects provisioning to stay ‘elevated’ in FY19E as ageing provisions catch up. Management has also guided for a further improvement in provision coverage.”

At the current stock price, the core lending franchise of the bank is available at ~1.1x P/Book FY20E, with a RoA of 1.4% for FY20E. 

Darpin Shah analysts at HDFC Securities said, “Lower interest rate reversals and credit costs, improving margins and steady business growth cause us to improve our RoAA estimates to 1.4% over FY18- 21E. Maintain BUY with a TP of Rs 418 (2.0x Sept-20 core ABV of Rs 158 and sub-value of Rs 103).”

M B Mahesh, Nischint Chawathe, Dipanjan Ghosh and Shrey Singh analysts at Kotak Institutional Equities said, “ICICI Bank reported another quarter of steady improvement in most operating metrics—loan growth accelerated (13% yoy) led by retail/SME, NIM improved (15 bps qoq), healthy CASA ratio (~50%) and headline impaired ratios declined further. Sub-investment grade book declined ~80 bps to 4% of loans. We are now seeing firm recovery in asset quality, which should give comfort that the improvement in return ratios is already underway.”

The trio at Kotak, “We maintain BUY rating with target price at Rs 410 (from Rs 400 earlier). We value the bank at 1.7X adjusted book and ~11X September 2020E EPS for RoEs that can move back to ~13-15% in the near term. The management has proffered an unchanged guidance of ~15% RoE (consolidated) for 1QFY21 and net NPLs at 1.5% of loans including normalized credit costs.”

On the other hand, Sharekhan in its research report said, “ ICICI Bank is valued at 1.7xFY20E book value, which we believe is reasonable considering improving long-term outlook. We, therefore, upgrade our rating to BUY with a revised price target of Rs. 365.”

Hence, ICICI Bank looks a good money making stock in coming days, if you want to take the opportunity of getting better gains.