Expectation of a change of guard at the helm at ICICI Bank seems to have infused a fresh life into its stock that has gained nearly 2.5 per cent thus far in June, outperforming the S&P BSE Sensex which moved up 0.6 per cent. The banking index on the Bombay Stock Exchange (BSE), the S&P BSE Bankex has, however, lost 1.3 per cent during this period.
On Monday, ICICI Bank’s board appointed Sandeep Bakhshi as its whole-time director and chief operating officer (COO). Chanda Kochhar, managing director (MD) & chief executive officer (CEO) will be on leave, pending the probe. The change comes amid allegations of a quid-pro-quo in transactions between Videocon Industries, Kochhar and her husband Deepak Kochhar’s company NuPower Renewables.
Though analysts see the appointment as a positive step, they do feel Kochhar’s complete exit from the bank would have sent a more positive step to the markets and shareholders. For now, the stock is factoring in most positives, they say.
G Chokkalingam, founder and managing director at Equinomics Research, though believes the appointment of new COO is a positive step, it is still unclear whether change of leadership is temporary one or permanent as there is a lot of ground that the investigation still has to cover before we reach any conclusion on this issue.
“Over the next one year, the stock can easily move up around 15 per cent provided the market conditions remain favourable. The bank is unlocking value from selling stake in subsidiaries and other investments. Investors can buy on a 5 per cent – 10 per cent dip from the current levels,” he says.
On Tuesday, the scrip lost nearly 1 per cent to Rs 289 levels on the BSE, as compared to 0.5 per cent fall in the S&P BSE Sensex in intra-day deals.
Thus far in calendar year 2018 (CY18), ICICI Bank stock has underperformed the markets by falling nearly 6.8 per cent, as compared to nearly 4.4 per cent and 2.6 per cent rally in the S&P BSE Sensex and the S&P BSE Bankex.
Analysts at Jefferies believe the board has found a safe middle ground though they feel creating a COO role is unnecessary in the long term. However, they maintain a buy rating on ICICI Bank given gradual improvement in the operating environment coupled with the arrest of fresh NPL formation, and cheaper valuations.
“We value ICICI Bank at Rs 380 – value core banking at 1.6x book, and the rest at Rs 24 per share and a holding company discount of 20 per cent. Key risks include Poor non-performing loans (NPL) trend and weak earnings trajectory,” write Nilanjan Karfa and Harshit Toshniwal of Jefferies in a co-authored report.
From a fundamental standpoint, analysts at Macquarie too remain positive on the stock. ICICI Bank, they feel, is well capitalised to transition to IFRS and absorb losses without any need to raise money.
“The bank has managed to monetize its subsidiaries, which in general, have been doing much better than the bank itself. There is going to be further value unlocking in terms of listing of ICICI Securities, ICICI Prudential Asset Management and sale of ICICI Home Finance over the next couple of years, all of which should be very positive for the ICICI Bank stock,” analysts at Macquarie said in a recent report.
|Brokerage||Rating||Target price (Rs)||Potential upside from CMP (%)|
|Kotak Institutional Equities||BUY||400||37.93|
|* Target price is sum of the parts (SOTP) valuation|
|CMP is current market price on BSE as on June 19, 2018|
|NA: Not Available|
|Data Source: Brokerage reports|