ICICI Bank

I have got special attachment with ICICI since my days in college. We were participating in a general quiz competition; one of the questions, which in fact made us win, was about the abbreviation of ICICI. In early 90s it was neither a bank nor a popular brand. Incorporated as Industrial Credit and Investment Corporation of India way back in 1955, at the instance of World Bank, Government of India and Indian industry, to work as a developmental financial institution, is now a private banking behemoth, showing phenomenal growth in the financial sector, whether it is banking, insurance, mutual funds, securities brokerage, venture capital funding etc


Why suddenly Sekhar started singing ICICI number? Generally, I don't have the habit of sleeping full day on Sunday. But this Sunday I made an exception. Slept till 5 in the evening and got up to read weekend news papers. HT does not give a bit of financial news on Sundays and Mint is a six-day pink paper. So I am left with only Indian Express, which very kindly gives thumbnails on business world. What caught my attention is the quarterly results of ICICI Bank. Recently I was allotted shares in its follow-on public offer. So in the capacity of a shareholder, I began reading between the lines also. I put down below some of my thoughts on it.

Salient features of the quarterly results are as follows:

• operating profit increased 58% to Rs.1,524 to Rs.965


• profit after tax increased by 25 per cent to Rs.775 from Rs.620


• fee income up by 35% to Rs.1,428 from Rs.1,055


• Total advances increased by 35% to Rs.198,277($48.7 billion) to Rs.147,184($36.2 billion)


• Provisions gone up by 156% to Rs.552 from Rs.216, in line with the provisions made during FY07. This includes impact of the higher proportion of non-collateralized loans in the retail portfolio

The numbers are quite promising. In spite of growing in size, it is still able to maintain the sizzling growth momentum on quarter on quarter basis. When RBI hiked interest rates in the wake of high inflation, the general view was that banking sector would face tough time on credit front. Yes, it indeed slowed down the credit growth. The latest data shows that overall credit has shrunk by Rs.14,386 cores since April, against a rise of Rs.33,818 crores over the same period last year. However, ICICI Bank's overall advances showed no signs of weakness. A look at the results reveal that retail credit is up by 29%, whereas the overall advances increased by 35%. Given the consensus that RBI may not change the rates in its ensuing Credit Policy and the healthy credit growth rate, the Bank may be able to perform reasonably well in the near future. The worrying factor is the raising bad debts, on the retail front in particular. Adequate provisions are made, but then one has to pull up socks and control and contain before they blow out of proportion.

As far as valuation of the stock on the bourses is concerned, the closing price on Friday is at Rs.985.15, after touching intra-day high of Rs.1003. Its life time high is Rs.1009. This quarter, EPS is little above 8. Annualised EPS would be between 32-35. Price by Earning (PE) ratio then works out to be upwards 30. My view is that the share price is fairly valued. It will be unfair to expect 100 per cent returns, it delivered during last one year, in the short to medium term, unless additional information relating to growth in existing or emerging areas flows into markets, or markets go on frenzy in the wake of relentless inflow of foreign money into country's capital markets. Having said that, I would like to put a 'hold' on it with annual returns' expectation in the range of 20-30.