ICICI bank moves on post Chanda Kochchar; Net profit declines, but income and asset-quality improves

Last Updated: Tue, May 07, 2019 16:30 hrs
ICICI bank

Life for ICICI bank seems to be heading back to normalcy since the ouster of Chanda Kochchar as the CEO and Managing Director. This is visible from the bank's fourth quarter results as well as what Dalal street experts believe. Kochchar who is being investigated by the CBI, had been ousted on 30th Jan 2019. The bank announced its fourth quarter results on Monday.

First glance of the bank's fourth quarter results suggests a dip in net profits- a 5% decline in standalone net profit at Rs 699 crores in the quarter ending March 31.

In the corresponding quarter of last year the bank posted a standalone net profit of Rs 1,020 crore.

The 5% drop has been attributed to higher expenses. The decline is also owing to higher provisioning for bad loans in the January to March quarter.

The bank made a provisioning of Rs 5,451 crore in this quarter compared to Rs 4,244 crore in the previous quarter [corresponding period last year].

The bank's consolidated net profit is up by 2.45 per cent at Rs 1,170 crore in the fourth quarter of 2018-19. In the same corresponding period of last fiscal the bank posted consolidated net profit of Rs 1,142 crores.

Reuters in a report said that the bank missed forecasts on its profit. The agency said that analysts were hoping for profits at Rs 2129 crores. The bank's total expenses too had jumped by 18.1 per cent to Rs 14,680 crore. This was led by a 17 per cent rise in interest that the bank paid on its deposits.

On Tuesday, the bank's scrip on the Bombay Stock Exchange slipped by 3.77% at Rs 386.25 per share. A total of 20.15 lakh shares exchanged hands [updated as at end of trading hours on BSE on Tuesday].

On a brighter side, the bank's total income increased by 4.9% to Rs 20,914 crore. The bank's net interest income grew 26.54% to Rs 7,620 crore in the current quarter from Rs 6,022 crore in the quarter ending March 31, 2018. Net interest margins stood at 3.72% in the fourth quarter of financial year 2018-19.

It said that asset quality improved with gross bad loans as a percentage of total loans easing to 6.7% in the quarter ended March 31 from 7.75 per cent in the previous quarter and 8.84 per cent a year earlier.

The lender said its net non-performing assets came in at the lowest level in the last 13 quarters. Its net NPA ratio decreased to 2.06 per cent on March 31, 2019, from 2.58 per cent on December 31, 2018.

Brokerage firm Elara Capital in a report revised the target price of the stock to R 431, saying "accumulate the stock".

In the report, analysts wrote, "ICICI bank to date has improved its retail asset & liability franchise significantly and with likely stabilization in overseas loan book; we expect strong loan growth of [nearly] 18% YoY [year-on-year] in FY20E, with margin expansion primarily driven by asset-side of the balance sheet."

"Higher balance sheet growth could lead to reduction in CASA composition, and industry data also underscores this. We estimate gross slippages ratio at 220bp [basis points 1 bp = 0.01%] and credit cost at 170bp vs guidance of 120-130bp. We arrive at a ROA of 98bp & 127bp and a ROAE at 9.0% & 12.3% in FY20E & FY21E, respectively."

"We reiterate Accumulate with a revised TP of INR 431 from INR 389 on a standalone entity) value of INR 325 at 2.0x (from 1.6x) FY20E P/ABV and value subsidiaries at INR 106."

Emkay Securities too shared optimism on the stock. This agency calculated the target price to Rs 465 [in 12 months].

"ICICI Bank has been undergoing various structural changes in areas such as credit culture/pricing, customer engagement, role-based employee designations, and performance evaluation system with a clear focus on improving customer experience, productivity and business profitability," said analysts at Emkay in a note.

"We believe that ICICI Bank is gradually transforming itself with its uncompromising focus on quality, profitability, accountability, governance, and customer-centricity, which were not seen in the past. This, coupled with reducing NPAs, improving return ratios (RoA/RoE of 1.5%/15% by FY21E) and a healthy capital position (15% Tier I in 3Q) with no risk of dilution in the near- medium term should set the bank on a solid re-rating path. We reiterate ICICI Bank as one of our top picks in the banking sector, with a TP of Rs465," added the report.

The agency also shared a graph of estimates and financial snapshot (standalone).


The detailed report is available here. Clicking this link opens a new PDF file.

Disclaimer: This story is only for information. Do consult with a SEBI certified financial analyst before investing.

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