I have remained invested in ICICI bank & Q4 results were encouraging.
Few things that I liked are -
- NNPA ratio has come down further to 4.77% on YoY basis despite Feb 12 RBI notification requiring classification of ~ 100bn Rs as non performing. The more important thing is the ratio of net restructured advances to net loans which was at 0.3%. Further the drill-down list came down to 47bn Rs. compared to 190bn a year ago. Further the bank is reducing overseas operations. There might also be some write-backs as IBC cases progress to resolution.
- Over last few years the bank has focused on building retail assets in the midst of asset quality issues on corporate side. The bank has given target of 60% retail book by FY20 (currently at 56%) & I think they will exceed this target by 2-3%. The guidance of 14-15% RoE by FY20 is also very encouraging.
- The bank is also trying to focus on revamping lending culture to corporates & that remains a key non-quantitative moniterable.
- The bank owns various high quality assets through its subsidiaries like - ICICI Life, ICICI General, ICICI Securities etc. The standalone book value stands at Rs. 164 & this shall grow faster in FY19 compared to this year. The subsidiaries also provide support to valuation in my view.
Despite all this, value discovery in ICICI bank might take a little bit longer. As @Yogesh_s mentioned here, there is high correlation between GNPA & P/B value market is willing to pay. ICICI banks’ GNPA still remains high at 8%+. That being said, I have not looked at correlation between say NNPA & P/B value.
The Videocon loan amount remains non-material to business in my view but it might impact sentiments. The question mark over CEO would be settled one way or another over next 3-4 quarters.
Disc - I own ICICI bank & Indian Bank as a part of undervalued distressed bank theme. Together they form 5-6% of the portfolio. No transaction for last 60 days in both. This is not a buy/sell recommendation, please do your own due diligence.