BackICICI Bank gives enough to cheer investors, even on outlook
ICICI Bank swung to profit in the June quarter because it didn’t need to make big provisionsAnalysts believe that given the upbeat guidance from the management, the stock could return to favour
PremiumThe strength of a stock is determined by how clear investors are on the outlook of the company.
ICICI Bank gets top marks on this as the lender not only reported improved asset quality but its management also gave a clear outlook.
The private lender swung to profit in the June quarter because it didn’t need to make big provisions as bad loans fell and core income improved.
The management in a call with media on Saturday categorically said there was no loan growth target but an intention to price risk appropriately. In other words, the lender won’t bind itself to a number on loan growth but will shop for the best borrower to serve.
This sounds logical as ICICI Bank was the hardest hit among private lenders from the sharp rise in toxic loans over the last three years. It has learnt its lesson as around 88% of its loans to companies in June quarter was made to firms rated A- and above.
For the June quarter, the bank saw its gross bad loan ratios decline and even incremental stress reduce through a fall in slippages. Its watchlist of stressed loans or those rated BB and below have also declined to ₹15,355 crore from ₹17,525 crore in the previous quarter.
The bank has guided that credit costs may not worsen from hereon and the pace of slippage will be contained. Moreover, it has chosen to beef up its provisions to guard against risk with coverage ratio at over 70% now.
Given the upbeat guidance from the management, analysts believe, the stock could return to favour. “ICICI remains our top Buy with a major OW (overweight) position in our sector EAP given its clear focus on portfolio quality and profitability versus growth, which should lead to better return ratios and a re-rating of stock," said brokerage firm Emkay Global in a note.
The lender’s stock rose 3% in early deals today in response to its quarterly results.
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