Immediate downside target may be 213-203
Q3FY16 PAT is slightly below estimates supported by other income & Tax Adjustments
And NII beats consensus by around 1%
But provisions rise 190% (YOY) and 202%(QOQ),
Which may be beyond any street estimates---
Thanks to RBI rule of early recognition of stressed assets
This trend may continue for the next few quarters---
CMP: 233
Either sell below 230-227 or on rise around: 243-253;
TGT1: 217-213*-203* (1-3M)
TGT2:188*-180 & 160-151*-145 (6-12M)
TSL > 257/265*
Note:
For ICICI Bk, 213 & 203 is a strong support and sustain below 203, more pain can come up to 188-151 zone.
Consecutive closing above 265 for any reason, ICICI Bk may rally up to 278-285 & 300-320
in the mid to long term (alternative bullish scenario).
Some key takeaways of the Q3FY16 result:
ICICI Bank reported Q3PAT of around Rs.3018 cr against consensus of Rs.3044 cr (YOY-2889 & QOQ-3030); i.e. PAT up by around 4.5% YOY, but down by 0.40% QOQ.
The marginal 4.5% YOY growth in PAT was also helped by deferred tax adjustments of Rs.733 cr.
Q3 EPS was at 5.17 against median estimate of 4.99 (YOY-4.94; QOQ-5.18).
Notably, other income grew by almost 36% YOY to Rs.4217 cr and net profit from I-Pru stake sale was at Rs.1243 cr. In fact, this 4% stake sale saves the day for ICICI Bank.
The bank also sold another 11% stake of I-Pru to Temasek (Singapore) and Fairfax (Canada) for Rs.2100 cr, which may be accounted in Q4FY16 after getting approval from FIPB.
NII grown by around 13% to Rs.5453 cr against estimate of Rs.5392 cr on the back of 20% surge in retail loans.
But provisions for bad loans (stressed assets) jumped by around 190% and 202% on YOY & QOQ basis to Rs.2844 cr in Q3FY16.
Bad loans of ICICI Bank now stands around 4.72% of total loans compared to 3.77% in the previous quarter (QOQ).
In absolute terms, the bank's net NPA shot up by around 47% (QOQ) & 108% (YOY) to Rs.9908 cr in Q3, primarily on one large steel co (most probably its Essar Steel ??).
As par the management, its exposoure to total steel sector stood at around 4.5% of total loan book. Also power sector is a headwind for ICICI Bank.
There was some silver lining in retail business of the bank in Q3, which clocked 24% YOY growth and retail loan portfolio now constitutes around 44% of the total loan book of ICICI Bank.
As usual, RBI's rule on early recognition of stressed assets and provisioning for the same had an impact on NPA(s) and bottom line on nearly all the banks and ICICI is also one of them. RBI has asked all the banks to come clean by FY-17 with quarterly review/recognition (Q3 & Q4FY16). As par the management, almost 60% of the provision is due to this new RBI directives about NPA management.
The management of the ICICI Bank is also not very optimistic about the coming days and expecting similar slippages and provisioning in Q4FY16 amid global (China) slowdown, currency wars, depressed commodity prices and subdued corporate activity in India. The management refrained from giving any earning guidance for FY-17 and looked less confident on a significant turnaround on asset quality soon. The management blamed steel sector as one of the reason for abnormal surge in provisioning in Q3.
As par the management, private investment cycle is not picking up, but its seeing some ray of hopes for the MSME sector with the gradual increase in Govt. spending.
The bank also restructured loans of around Rs.500 & 1600 cr in 5:25 scheme and SDR scheme in Q3FY16.
In Q3FY16, NIM of ICICI Bank grew by 0.7% (YOY) to 3.53% mainly due to decline in cost of funds from its international operations. As par the management, going forward, NIM could come under pressure as more loans will not earn interest as they are classified as NPA and also due to change in norms to calculate base rate as prescribed by RBI.
Consequently, various analysts cut down their previous EPS estimates by around 10% and are describing the present NPA scenario after RBI directive as a "tip of the iceberg" and just beginning of a "huge tsunami".
Till some time now, we all believed that this NPA problem is just an issue of "Sarkari Banks" (PSBS), but now with result of ICICI & Axis bank, this may also be a generic issue for private banks as economic slow down is also affecting them.
What spooked the market about this NPA fiasco is that the huge disclosure by the banks after RBI pressure and the market is getting a glimpse of the real problem (stressed assets) in the banking space.
For ICICI Bank, some analysts are apprehending more bad numbers in Q4 for these provisioning (market buzz that accounts like JP Associates may be figured in the next QTR).
More over, ICICI bank had guided around 90-95 bps as credit costs in the beginning of the FY-16 and was sticking long throughout the year with this guidance. But now, towards the end of the FY, the management is now declaring a credit costs of around 180 bps, which is almost double of the previous guidance. Thus analysts are concerned about the lack of clarity (or credibility ??) in ICICI Bank's disclosure in Q3, unlike Axis Bank, which has come forward this time (after spooked in Q2FY16) with clean disclosure about all the stressed assets.
For ICICI Bank, analysts cut their EPS & TP primarily on the back of higher credit costs, lower NIM and fees.
But, relatively new generation private banks, such as Yes Bank, IIB, Kotak may not be so much affected as these are behind the "boom & dust" cycle followed after 2007-08 recession period. These are mainly retail banks and did not lend heavily to corporates compared to their peers (except HDFC Bank).
There were some similar concerns for Yes Bank in the past, but it seems that the bank did not disburse the sanctioned credit limit fully to some of the highly indebted and stressed corporates and thus managed the NPA situation quite good despite having 67% advances to corporates.
There are significant surge in stressed assets in the last few years for Indian banks, specially PSBS as economic slowdown coupled with stretched balance sheets and high bank interest regime along with irresponsible borrowings on the part of the corporates, which has worsened the situation.
As par some reports, total provision requirement for this RBI directive is around Rs.1 lac cr, while the cumulative profits of all the Indian Banks are around Rs.30/35000 cr and the provisions may wipe out next 2/3 years of profit in the banking sector.
Many corporates went for expansion, diversification and capacity additions and gone for maximum leverage by raising finances from various sources including Indian Banks & USD/FX dominated external commercial borrowings, but they miscalculated on future domestic demand potential and current global scenario (slowdown). Now, with appreciating USD, the problem may be quite serious, if not properly hedged.
Thus unless we see real visible economic recovery in India, substantial portion of the current provisions may be turned into a permanent write offs for the Indian Banks and along with that huge fund requirements of Basel-III norms, the total situation may turn into quite complicate.
Though Indian corporates are trying their best to deleverage by selling non-core assets and repaying some portion of the huge debts, looking ahead, in the scenario of global slowdown and excess capacities, the process may not be smooth enough.
Foe PSBS, Govt may help for recapitalization, but that too may very little and too late. For some of the private banks, there will be no option, but to take the market route and PSBS also has to take this market route partially. But both these options may not be EPS accretive in nature in the near term for the banking sectors.
Now, all the above bad news was largely priced in the stock of ICICI Bank as it already corrected by over 32% from its mid-July'15 peak.
Technically, the scrip has strong support zone of around 213-203 zone and unless and until overall market does not break 7200-6900 level, ICICI Bank may not break the above levels on the downside. But, looking ahead, 243-253 might be proved as strong resistance zone for it, until some more clarity emerges about the magnitude of its stressed assets.
As par BG metrics and current market parameters:
(based on TTM & FWD EPS)
Present median valuation of ICICI Bk may be around: 280 (FY:15-16/TTM)
Projected fair valuations might be around: 300-315 (FY:17-18/FWD)
| SCRIP | EPS(TTM) | BV(Act) | P/E(AVG) | Low | High | Median | 200-DEMA | 10-DEMA |
| ICICIBANK | 20.43 | 138.37 | 15 | 292.09 | 268.13 | 280.11 | 278.41 | 234.6 |
| ICICIBANK | 20.45 | 151.25 | 15 | 292.24 | 268.26 | 280.25 | 278.41 | 234.6 |
| ICICIBANK | 22.95 | 165.65 | 15 | 309.58 | 284.18 | 296.88 | 278.41 | 234.6 |
| ICICIBANK | 25.75 | 183.25 | 15 | 327.93 | 301.02 | 314.47 | 278.41 | 234.6 |
Analytical Charts:
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