ICICI Bank: Analysts remain bullish despite near-term challenges

The recent turn of events at ICICI Bank has dented sentiment with most analysts turning cautious on the stock from a near-term perspective. Also, with investigative agencies entering the picture, they believe, the loan disbursement process at the bank can also come under scrutiny. All this, they feel, will remain a near-term overhang for the stock.

The scrip tumbled nearly six per cent on Monday to Rs 262 levels, its biggest single-day drop in three years amid Central Bureau of Investigation (CBI) initiating a preliminary enquiry into alleged links between the bank’s Chief Executive Officer (CEO) Chanda Kochhar and the Videocon group.

On Tuesday, however, the counter staged a partial rally, rising nearly 1.7 per cent to Rs 266 levels on the National Stock Exchange (NSE) in intra-day trade.

Despite the near-term concerns, analysts remain positive on the road ahead for the Bank as most of its businesses are doing well. A strong capital position (CRAR at 17.7%), stable NIMs (around 3.3 per cent) are some of the key positives, they say.

“The news has surely dented the sentiment. There is a possibility that the Bank replaces the current CEO. If that happens, the stock will take a further hit. However, investors should not sell in panic. From a fundamental viewpoint, the bank is on a stable footing as its banking, home loan, securities and AMC (asset management) and other businesses are doing well,” says G Chokkalingam, founder and managing director of Equinomics Research.

Thus far in calendar year 2018 (CY18), ICICI Bank has underperformed the markets (S&P BSE Sensex) and the banking benchmark on the Bombay Stock Exchange (S&P BSE Bankex) by falling around 17 per cent as compared to a fall of 2.3 per cent and six per cent in both these indices respectively, ACE Equity data show.

Going ahead, the bank has an opportunity to grow/gain market share in the banking space as the PSU banks are struggling with their own internal business challenges and are unable to provide significant competition, say analysts at Sharekhan.

“ICICI Bank is trading at around 2x its FY2019E standalone adjusted book value per share (ABVPS) and prima facie it is reasonable for a bank of its size and franchise quality. However, considering the recent turn of events and the uncertainty regarding the stock and the outcome of the investigations, we believe caution is warranted. We have revised our rating on the stock to Hold with a revised price target of Rs 295,” they said in a recent report.

Mahrukh Adajania and Sanket Chheda of IDFC Securities have maintained a ‘sector outperformer’ rating on the stock in their recent report.

“We see pressure in the short term following the fine, allegations and CBI’s preliminary enquiry. Earnings for the March 2018 quarter (Q4FY18) will likely be weak with slippage of over Rs 130 billion, and a core pre-tax loss in our view,” they said.