INSUBCONTINENT EXCLUSIVE:
This could come as a breath of fresh air for ICICI Bank
The stock could rally as much as 100 per cent in two years as the narrative shifts to growth from bad loans.
So goes the thinking at global
brokerage firm Morgan Stanley
But hold on, there will be stock volatility for 2-3 quarters, the brokerage cautioned, saying the risk-reward is favourable with a high m
argin of safety at 1.2x FY20 estimate core book value and 5x FY20e core pre-provision operating profit (PPoP)
Morgan Stanley in a report said, "If we are correct on our assessment of that, investors could start to value this stock as a growth stock
The upside to valuations can be fairly material
Right now, it sounds aggressive to build in a possibility of ICICI Bank trading at average retail lender's multiples
But in our view, if asset quality concerns abate, core PPoP growth picks up and RoE (return on equity) improvement comes through, this will
likely happen."
The stock advanced over 5 per cent to Rs 334.45 in the afternoon trade on Thursday
The global brokerage house compared ICICI Bank's "P/core PPoP" and PE multiples -- current, 12-month base and potential -- doubling in
two years with retail lenders
retail lender (given large retail asset and deposit franchise)
Stanley said.
Higher-than-expected loss because of defaults, significant fines by regulators and re-acceleration in impaired loan NPL
from NPL pressure to growth "fairly quickly"
Its logic: When banks emerge from NPL problems, they often enjoy a strong re-rating
However, this recovery usually fades as PPoP suffers from subsequent risk aversion
ICICI, despite NPL problems, has kept improving its retail franchise
This is driving good underlying earnings progression
We expect RoE of 14-15 per cent in FY20-21
