Brokerages positive on Shriram Transport post Q4, but cut target price

Shriram Transport Finance shares fell 3.5 percent intraday on May 9 after March quarter earnings but recouped some losses as brokerages remained positive on attractive valuations, though they slashed price target.

The stock was quoting at Rs 1,017.15, down Rs 10.75, or 1.05 percent on the BSE, at 1015 hours IST.

Profit during the quarter ended March 2019 declined sharply to Rs 746.04 crore against Rs 961.76 crore recorded in the same period last year.

Net interest income, the difference between interest earned and interest expended, increased to Rs 1,905.86 crore from Rs 1,854.63 crore YoY.

Total assets under management as of March 2019 stood at Rs 1,04,482.29 crore, a growth of 8.5 percent compared to Rs 96,260.61 crore as on March 2018.

Shriram Transport Finance Company, the flagship company of the Shriram group, has a significant presence in consumer finance, life insurance, general insurance, stock broking and distribution businesses.

Here are what brokerage think of the stock:

Brokerage: Morgan Stanley | Rating: Overweight | Target: Rs 1,350 | Return: 31 percent

We stay overweight on Shriram Transport given attractive valuation and strong positioning, but slash price target to Rs 1,350 from Rs 1,515 earlier as AUM growth and NIM were weaker than we expected.

We cut revenue and EPS estimates, driven by lower AUM and NIM.

Brokerage: Macquarie | Rating: Outperform | Target: Rs 1,265 | Return: 23 percent

We have outperform rating on the stock but slashed price target to Rs 1,265 from Rs 1,320 as operating performance was weak due to slow in lending operations.

NPL reduction was modest against peers in a seasonally strong quarter, and NIM will remain flat from Q4 exit NIM of 7.2 percent throughout FY20.

Overhang from the proposed merger of Shriram Group entities remains.

Brokerage: Jefferies | Rating: Buy | Target: Rs 1,200 | Return: 17 percent

Loan growth disappointed during the quarter ended March 2019, though asset quality improved.

We see headwinds from weak commercial vehicle trends. Used commercial vehicle segment should be relatively resilient.

Lending rate hike transmission should support NIMs and prospects of potential merger may remain an overhang in the near term.

We have a buy rating on the stock but slashed price target to Rs 1,200 from Rs 1,240 earlier.

Brokerage: Deutsche Bank | Rating: Buy | Target: Rs 1,400 | Return: 36 percent

AUM growth was weak during the quarter, and high balance sheet liquidity impacted NIMs. NIM will remain soft given the current liquidity environment.

Management guided for 20 percent AUM growth which we believe is ambitious.

Valuation at 1.1x FY21e P/BV for 17 percent return on equity looks attractive, hence we retain buy call on the stock but slash price target to Rs 1,400 from Rs 1,530 earlier.

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HCL Tech Q4 profit may decline but revenue growth could beat peers

HCL Technologies is likely to deliver fall in profit in Q4 but its revenue growth could be higher than peers. The company will announce results on May 9.

Brokerages expect profit to decline marginally compared to the previous quarter, partly impacted by tepid operating income growth.

Prabhudas Lilladher expects net profit to fall 2.9 percent sequentially to Rs 2,536.4 crore while Motilal Oswal sees 1.2 percent decline QoQ.

But revenue growth is likely to be higher than its closest peers TCS, Infosys, Wipro and Tech Mahindra.

Brokerages expect dollar revenue growth in the range of 2.7 percent to 3.3 percent compared to the previous quarter as deal momentum has been extremely strong with announcements of several large and mega deals.

"We expect HCL's revenue to grow at 3.3 percent QoQ in USD terms and 3 percent QoQ in constant currency, mainly due to continued traction in IMS backed by its double-digit sequential growth in Q3FY19," Motilal Oswal said.

According to Edelweiss, revenue is likely to grow 3.1 percent in USD and 2.9 percent in constant currency terms on account of strength in Mode-3 business and continued recovery in the IMS business.

"We believe that HCL Tech should guide for revenue growth upwards of 15 percent YoY CC due to contributions from: (1) improved organic growth, (2) revenues from IBM’s IP purchases (around 5.5 percent), (3) recent mega deal with Xerox (around 2 percent), and (4) residual impact from acquisition integration in FY19 (around 0.5-1 percent)," Motilal Oswal said.

On guidance, Kotak expects the company to guide for 14-16 percent revenue growth which includes an inorganic component of 5.4 percent revenues from the IBM products buyout.

It expects HCL to guide to 8.5-10.5 percent revenue growth excluding IBM products but including other inorganic components.

Brokerages say EBIT margin may contract sequentially due to rupee appreciation but could be within the guidance given by management.

"Operating margin is likely to be 19.7 percent, in line with management guidance of 19.5–20.5 percent. INR appreciaition, partially offset by operational efficiencies, should erode EBITDA margin by 10bps," Edelweiss said.

Kotak also expects EBIT margin to decline 10 bps due to rupee appreciation and elevated investments in the business

Key things to watch out for would be:

1) Overall guidance for FY20, organic and inorganic contribution

2) Mode 1: Demand for IMS services and growth in BFSI vertical

3) Mode 3: Plan to launch more HCL branded products and ability to sell them in the market

4) Capital allocation in light of aggressive product acquisitions5) Deflationary impact from renewal of legacy IMS deals

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Stay with largecaps in the short term: HDFC Securities

Nifty has been trading in the narrow range of 11,564-11,787 on closing basis for last one month. The Nifty has been taking support around 11,550 and the same should be kept as a stop loss in long positions.

Any close above 11800 would result in a breakout from the consolidation and in that case, we can expect Nifty to rally towards 12,000 and 12,430.

The Nifty has recently violated 20-day EMA support of 11,637. And, now a close below 11,550, which has been the lower level of the recent consolidation in Nifty, would be considered bearish trend reversal for the short-term.

Nifty is placed above medium to long-term moving averages of 20, 50, 100 and 200 days. The gap between 50-DMA and 200-DMA has been widening gradually, which indicates that bullish momentum is intact for medium to long term.

Oscillators are showing weakness in the trend but unless price support is broken, short term trend would be considered bullish in Nifty. To conclude, Nifty is holding positional up trend but fallen into the short term consolidation.

A close above 11,800 would result in a breakout and dive below 11,550 would result in a bearish trend reversal. The Midcap and Smallcap stocks are going weak and therefore it would be advisable to stick to the largecaps with strict stop losses, as far as short-term trading in concerned.

Here are three stocks that could give 7-11 percent return in the next month:

UltraTech Cement: Buy| LTP: Rs 4519| Target Rs 5,000| Stop loss: Rs 4,200| Return: 11 percent

Recently, the stock registered a new all-time high above Rs 4,600. It formed a bullish golden crossover on the charts that indicates a long-term trend reversal.

The stock has broken out from the long consolidation which was held on for the last nine quarters. The company has also posted nice quarterly results.

Considering the technical evidence discussed above, we recommend buying the stock at CMP and average it around Rs 4,400, for the target of Rs 5,000, and keep a stop loss at Rs 4,200 on a closing basis.

ITC: Buy| LTP: Rs 307| Target: Rs 330| Stop loss: Rs 295| Return: 7.5 percent

The stock witnessed a bullish golden crossover on the charts, where 50-DMA surpassed 200-DMA on the upside, indicating a long-term bullish trend reversal.

From the FMCG space, ITC looks the strongest stock for the short-term. The stock price has surpassed the crucial resistance level of Rs 300 after a long time.

Considering the technical evidence discussed above, we recommend buying the stock at CMP and average it at 300, for the target of Rs 330, and keep a closing stop loss at Rs 295.

ONGC: Buy| LTP: Rs 170| Target: Rs 185| Stop loss: Rs 160| Return: 9 percent

The stock price has broken out from the consolidation range of Rs 155-160. It has been sustaining above its 200-DMA. The short-term moving averages have been trading above long term moving averages.

Indicators and oscillators have been showing strength on the daily and weekly charts. Long term trend line breakout is seen on the weekly charts.

Considering the technical evidence discussed above, we recommend buying the stock between CMP and Rs 165 for the target of Rs 185 and keep a stop loss at Rs 160 on a closing basis.

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Nalco records all-round success in several sectors

Aluminium major NALCO on Wednesday said it has recorded an all-round success and global benchmarks in 2018-19 creating records in several sectors.

Along with significant achievements on production front, the Navaratna CPSE achieved the distinction of lowest cost producer of alumina in the world (as per the Wood Mackenzie report), a company statement said.

It also said the company has also been ranked as the lowest-cost producer of Bauxite in the world.

With more than 100 per cent capacity utilization, NALCO's Panchpatmali mines has achieved bauxite excavation of 74.14 lakh MT, which is highest ever since inception, it said.

Bauxite transportation has gone up to 72.31 lakh MT, which is also highest ever since inception. Company's Alumina refinery has produced highest-ever 21.53 lakh MT of Alumina Hydrate and set a new record, it said.

Steam & Power Plant (SPP) of Alumina Refinery achieved highest ever net power generation. Further, Aluminium Smelter achieved highest cast metal production of 4.40 lakh MT in last 8 years. NALCO's Smelter has produced highest-ever wire rod, billet, green anode, rodded anode, T-Ingot since inception. Wind power generation of 363 MU is also highest ever since inception.

Besides, NALCO's Smelter plant has also achieved a specific electrical energy consumption of 13,370 KWH per tonne of aluminium in 2018-19, which played a significant role in reduction of input cost and saving of Rs 54 crore to the company. The Captive Power Plant of NALCO has reduced the Specific Consumption of coal from 0.818 kg/kWh to 0.792 kg/kWh, resulting in a saving of Rs 52 crore, it said.

It may also be noted that NALCO has ended financial year 2018-19 on a strong performance in domestic sale which is highest-ever since inception.

Total metal sale of 4.41 lakh MT registered a growth of 3.5 per cent over last year and also Domestic sale of metal of 4.02 lakh MT registering a growth of 14.9 over last year are highest ever since inception, the release said.

Further, as per the Public Enterprise Survey of Department of Public Enterprises (DPE), the Company has been rated as the 3rd Highest 'Net Foreign Exchange Earning CPSE' in the Country for the year, it added. 

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Source: Moneycontrol

Market Headstart: Nifty likely to open higher; 3 stocks which could give 5-8% return

The Nifty50 is likely to open higher on Thursday tracking Asian market which were trading near 8-month high. The index closed 69 points lower at 11,643 on Wednesday.

A positive opening is likely as Nifty Futures on Singaporean Exchange were trading over 28 points higher. The futures traded around 11,740-odd levels.

US stocks edged higher on Wednesday, extending a strong start to the quarter as a rally among chipmaker shares provided a boost to the broader market on growing hopes of a trade deal between Washington and Beijing, said a Reuters report.

Asian shares paused near an eight-month peak on Thursday as investors awaited developments on trade talks between the United States and China, who appear closer to signing a deal, nudging bond yields higher globally and softening the safe-haven yen, it said.

The rupee surged by 33 paise to close at 68.41 against the US dollar Wednesday amid the greenback's weakness against key rivals overseas, even as oil prices firmed up on supply concerns.

Stocks in news:

Realty firm Godrej Properties Ltd on Wednesday said it has entered into a joint venture (JV) with a developer to construct luxury housing project in Mumbai.

Cash-starved Jet Airways on Wednesday deferred the March salary payment to its employees, citing "complexities" involved in the finalisation of the debt-recast plan, under which the SBI-led consortium of lenders has taken over the management control of the airline.

Diversified group Raymond on April 3 announced a foray into the real estate sector and launched its first housing project in Mumbai with expected revenue of Rs 3,500 crore.

Technical Recommendations:

We spoke to Bonanza Portfolio and here’s what they have to recommend:

Dabur India Ltd: Buy| LTP: Rs.403.45 | Target: Rs 432|Stop Loss: Rs 394|Upside 8%

BPCL: Sell| LTP: Rs.363.20 | Target: Rs 340| Stop Loss: Rs 376| Upside 6%

HCL Technologies: Buy| LTP: Rs 1120.60| Target: Rs 1177|Stop Loss Rs.1092| Upside 5%

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Source: Moneycontrol

Marico gains 3% as CLSA maintains 'buy' with target at Rs 465

Shares of Marico gained 3.7 percent intraday on April 3 as CLSA maintained buy with a target at Rs 465 per share. The pre-Q4FY19 commentary seems decent, while India business volume growth should be around 8 percent YoY, said CLSA.

It forecast the company to report more than 15 percent in EBITDA as well as net earnings.

The company is a top pick due to a strong launch pipeline and margin visibility.

At 1102 hours Marico was quoting at Rs 354.20, up Rs 8.50, or 2.46 percent on the BSE.

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Source: Moneycontrol

Lumax Auto rallies 4% despite shutting down plant in Haryana

Lumax Auto Technologies surged nearly 4 percent intraday on April 3 despite closing its PCB manufacturing unit in Haryana.

The company in its BSE release said that the discontinuation of the unit will be effective from April 1.

The share touched its 52-week high of Rs 224.10 and 52-week low of Rs 127 on 16 August 2018 and 28 June 2018, respectively.

At 1033 hrs, Lumax Auto Technologies was quoting Rs 143.40, up 3.58 percent on the BSE.

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Source: Moneycontrol

Texmo Pipes gains 5% on preferential share allotment

Shares of Texmo Pipes and Products rose more than 5 percent intraday on March 28 after the board allotted equity shares worth Rs 3.01 crore on preferential basis to promoter group Shree Padmavati Irrigations LLP.

The company in its BSE release said it has allotted 13 lakh equity shares at a price of Rs 23.20 per share to Shree Padmavati Irrigations.

The share touched its 52-week high of Rs 40.70 and 52-week low of Rs 14.20 on 10 September 2018 and 17 July 2018, respectively.

At 0940 hrs, Texmo Pipes and Products was quoting Rs 20.60, up 5.91 percent on the BSE.

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Source: Moneycontrol

Nelco gains 2% after selling stake in Nelito Systems for Rs 6.77 crore

Shares of Nelco Ltd gained almost 2 percent intraday on March 28 after the satellite communication company sold its entire investment in Nelito Systems at a consideration of Rs 6.77 crore to Japan-based IT company DTS Corporation.

The company in its BSE release said that the Board of Directors granted approval for the sale of 2,53,665 equity shares of Nelito Systems, representing 12.3 percent stake, to DTS Corporation for Rs 6.77 crore.

The share touched its 52-week high of Rs 372.05 and 52-week low of Rs 154 on 14 August 2018 and 28 March 2018, respectively.

At 0956 hours, Nelco Ltd was quoting Rs 285, up 1.91 percent on the BSE.

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Source: Moneycontrol

HCL Tech rallies 3% as BofAML upgrades stock, expects 20% upside

HCL Technologies rallied about 3 percent on Thursday morning and was also the top Sensex gainer after global investment firm BofAML upgraded the stock.

BofAML revised its rating on the stock to 'buy' from 'neutral' and hiked its target price from Rs 1,060 to Rs 1,250 which translates into an upside of nearly 20 percent from current levels.

The stock has been on investors’ radar - it has rallied by about 9 percent so far in 2019 and a little over 10 percent in the last three months.

The global investment bank expects the organic revenue growth rate to improve in 2019-20. The stock is poised to gain from the large deal intake and lower portfolio drag.

The global investment bank sees stable margin on accretion from software products in the next financial year. The 2019-20 revenue guidance implies an uptick in organic growth rate.

In the December quarter results, HCL Tech has maintained its full-year constant currency revenue growth guidance at 9.5-11.5 percent and EBIT margin expansion forecast at 19.5-20.5 percent.

The country's fourth largest IT company reported 2.8 percent sequential growth in December quarter net profit to Rs 2,611 crore, beating analysts' estimates.

Revenue in rupee terms increased 5.6 percent quarter-on-quarter to Rs 15,699 crore in the quarter ended December 2018, the company said.

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Source: Moneycontrol

Tata Motors stock crash: Over 200 mutual fund schemes own equity worth Rs 4,000 cr

Shares of Tata Motors, which underperformed benchmark indices in 2018, witnessed a fresh round of selling recently after December quarter results. It led to an erosion of more than Rs 8,600 crore in terms of market capitalisation.

Tata Motors hit a 10-year low in intraday trade a day after it reported a net loss of Rs 26,961 crore for the quarter ended December 2018 impacted by an exceptional item of asset impairment of Rs 27,838 crore.

Over 200 mutual fund schemes are invested in Tata Motors, which is part of Nifty and Sensex. Any drastic slide in market price could also impact those which have considerable exposure in the automaker.

Out of 200 schemes, 16 have exposure of more than 2 percent including Reliance Capital Builder, Reliance Vision, Reliance Tax Saver, UTI Focused Equity, Kotak India Growth Fund and ICICI Prudential Bharat Consumption, Morningstar India data showed.

In terms of value, more than Rs 4,000 crore of mutual fund money is riding on Tata Motors, and approximately Rs 1,700 crore in Tata Motors DVR, data showed.

We have collated a list of 15 MFs from data provided by Morningstar India that have exposure of more than 2 percent of their AUM in Tata Motors:

According to Reuters, analysts giving buy rating to Tata Motors have reduced from 16 to 11 in the last three months. The consensus has now shifted towards holding the stock.

Some brokerage firms such as Axis Capital and Motilal Oswal downgraded Tata Motors stock post the December quarter numbers that were impacted by an exceptional item of asset impairment.

Most brokerage firms reduced their earnings per share (EPS) estimate for Tata Motors and reduced their target price on the stock. CLSA retained sell rating on Tata Motors and has a target price of Rs 150.

JLR reported a loss for the third straight quarter as net sales declined 1 percent YoY to 6.2 billion pounds, as volumes fell 11 percent YoY. EBITDA margin shrank 180 bps to 7.3 percent impacted by one-off cost on account of de-stocking and warranty cost.

JLR margins declined QoQ despite higher volume. The big asset impairment dragged Tata into a consolidated loss. The demand outlook has worsened in recent quarters in China and India.

CLSA slashed its FY19-21 EPS estimate for Tata Motors by 2-66 percent. The stock will remain weak given insufficient near-term product triggers, said the research firm.

The weak sales in China and de-stocking have impacted JLR numbers. The December quarter loss stood at 3,129 million pounds. JLR’s EBITDA margin stood at 7.8 percent which was 200 bps below estimate.

The finance cost for the Indian automaker increased by Rs 321 crore to Rs 1,568 crore during Q3FY19 versus the same quarter last year.

It is tough to bottom fish in the company while P&L (profit & loss) seems to be near trough.

Axis Capital downgraded Tata Motors to 'hold' after December quarter earnings and reduced its target price to Rs 187 from Rs 217 earlier.

Motilal Oswal downgraded Tata Motors to 'Neutral' after December quarter results with a target price of Rs 166. The brokerage firm also slashed its FY20/21 consolidated EPS estimate by 21percent/13 percent.

Deutsche Bank maintained its 'hold' rating on Tata Motors after December quarter results and reduced its target price to Rs 175 from Rs 195 earlier.

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Source: Moneycontrol

Bank of Baroda raises lending rates by up to 0.2%

Ahead of the monetary policy review, state-owned Bank of Baroda (BoB) Tuesday increased its lending rates by up to 0.2 per cent, a move that will make home, auto and other loans expensive.

The bank has revised the marginal cost of funds-based lending rate (MCLR) with effect from Thursday, BoB said in a statement.

The MCLR for a three-month tenor increased to 8.50 per cent from the existing 8.30 per cent and for six-month maturity, it will go up to 8.70 per cent from the current 8.50 per cent.

Interest rate on one-year tenure will go up by 0.1 per cent to 8.75 per cent.

Most of the retail loans are benchmarked against one-year MCLR.

The RBI is schedule to unveil its sixth bi-monthly monetary policy on Thursday.

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Source: Moneycontrol

Titan stock jumps 5% as brokerages hike target price on strong Q3 earnings

Titan Company shares gained 5 percent to hit a 52-week high of Rs 1,044.30 on Monday morning as brokerage houses raised price target on the stock after the company reported strong earnings for December quarter.

The stock was quoting at Rs 1,031.90, up Rs 40.60 or 4.10 percent, amid high volumes on the BSE at 10:12 hours IST.

Global brokerage house Credit Suisse upgraded rating on the watches-to-jewellery maker to outperform from neutral and raised price target to Rs 1,175 from Rs 935 apiece after increase in its earnings estimates by 3-10 percent.

Higher gold prices have been aiding an already strong growth trajectory, said the research house which sees tailwinds from a strong wedding season.

CLSA also retained its outperform call on the stock and raised price target to Rs 1,100 from Rs 1,035 after revising EPS estimates by 2-6 percent as strong Q3 results drove earnings upgrade.

Exceptional performance in jewellery business was highlight of Q3 earnings and watches business faced margin headwinds on phasing out issue in A&P spends, the brokerage house said, adding the management is hopeful of a pick-up in jewellery sales in March.

Titan reported a healthy 43.5 percent on-year growth in third quarter consolidated profit to Rs 413.2 crore driven by revenue growth and strong jewellery business during festive season.

Revenue from operations during the quarter grew 34.6 percent year-on-year to Rs 5,871.5 crore with jewellery business growing 37 percent YoY.

The topline growth was driven by these new introductions, some successful activations as well as measured network expansion, the company said.

The income from watches increased 18.8 percent to Rs 641 crore and the eyewear business too grew a healthy 39.7 percent in Q3 to Rs 129 crore.

At operating level, EBITDA (earnings before interest, tax, depreciation and amortisation) grew 31.4 percent YoY to Rs 584.2 crore in Q3, but margin contracted to 10.3 percent against 10.5 percent YoY.

Adjusted EBITDA stood at Rs 654 crore for the quarter. During the quarter, there was an additional provision of Rs 70 crore made for investments as part of treasury operations in inter corporate deposits in the IL&FS group.

Jefferies has maintained its hold rating on Titan but raised target price to Rs 1,100 from Rs 920 after increase in earnings estimates by 6 percent for FY19-21.

"The company continued to execute strongly & gaining share in jewellery business. 48x FY20e PE fairly captured superior execution & strong brand franchise," the brokerage said.

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Source: Moneycontrol

DHFL falls 13% even as co divests majority stake in Aadhar Housing Finance to Blackstone

Shares of Dewan Housing Finance (DHFL) fell 13 percent in the morning trade, even as the company decided to divest its stake in Aadhar Housing Finance to Blackstone.

The stock touched a 52-week low of Rs 97.00. It touched an intraday high of Rs 111.15 and an intraday low of Rs 97.00.

Private equity major Blackstone agreed to buy nearly 80 percent of affordable homes-focused Aadhar Housing Finance from the financially stretched Wadhawan group for an undisclosed sum.

The group's holding company Wadhawan Global Capital (WGC) will be selling its 70 percent stake in the company, while its listed mortgage lender subsidiary DHFL will also be exiting its investment, which is reported to be around 9 percent, as per a company statement on February 2.

The deal comes days after the group was alleged to have syphoned off over Rs 31,000 crore of public money as reported by news portal Cobrapost, which claimed loans were taken from DHFL and the money taken out of the country by the Wadhawans.

The group has denied all the allegations, even as the DHFL stock plunged since then.

At 09:36 hrs Dewan Housing Finance Corporation was quoting at Rs 106.70, down Rs 4.75, or 4.26 percent.

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Source: Moneycontrol

Strong earnings outlook, attractive valuation make ICICI Bank a must buy

The third-quarter earnings of ICICI Bank strengthens our belief that the bank is well on track on multiple fronts to deliver to targeted returns by June 2020. In fact, we will not be surprised if it revises targeted consolidated RoE (return on equity) of 15 percent upwards in another couple of quarters.

ICICI Bank reported a very healthy performance for Q3 FY19 with core pre-provision operating profit (excluding treasury income ) increasing by 14 percent year on year (YoY). However, rise in provisions led to muted headline number of reported net profit declining by 3 percent YoY.

With bulk of problem assets already recognised till FY18 and in Q1 FY19, the slippages or gross additions to non-performing assets continued to trend downward in Q3. However, our enthusiasm for the bank is not just limited to receding asset quality problems. There is more than a reason that makes us decisively positive on the stock.

The bank has continued to improve its retail franchise – both assets and liabilities. ICICI Bank’s balance sheet it is now comparable to best in class and is the first reason for our optimism with bank’s CASA (low cost current and savings) deposits at 49 percent and retail loans at 59 percent of total loan book.

Bank’s adequate capitalisation is the second reason that makes us affirmative. In an environment where large a large part of the lending system has been crippled because of a shortage of capital (public sector banks) and receding liquidity (NBFCs), ICICI Bank is well poised to leap ahead with more than adequate capital.

Third and the most important reason is expectation of improvement in return ratios. With the receding asset quality issues and provisions thereof, we expect the reported numbers to improve significantly from FY20 as the current year (FY19) remains a year of consolidation due to higher credit costs.

And last but not the least, considering multiple levers that should help drive sustained improvement in RoE, bank’s valuation is extremely attractive.  With the stock currently trading around 1.5 times FY20e book, current valuations seems to be pricing in the most concerns and offers a favourable risk reward.

Key positives

Overall advances growth stood at 12 percent YoY as healthy 14 percent growth in domestic loan book was partially negated by 5 percent de-growth in international loans. A strong focus on retail lending has enabled ICICI Bank to grow its domestic loan book almost in line with the system growth, despite cyclical weakness in the large corporate segment. Retail assets grew by solid 22 percent YoY while corporate loans were almost flat YoY.

The net interest margin (NIM) for the quarter improved to 3.40 percent from 3.33 in previous quarter mainly due to better margins on international book while margins on the domestic book remained almost stable at 3.72 percent.

Fee income growth was healthy at 16 percent driven by retail fees which constituted 73 percent of total fees.

Provision coverage ratio (PCR) improved significantly to 68.4 percent (up 950 bps sequentially). This is much faster -than-expected acceleration in bank’s earlier stated objective to improve PCR to 70 percent by June 2020.

Gross slippages to non-performing assets declined in Q3 to Rs 2,091 crore which was very encouraging. Thanks to contained slippages and higher provisioning, net NPAs declined to 2.58 percent compared to 3.65 percent in Q2.

The bank’s exposure to list 1 and list 2 of corporates undergoing resolution through National Companies Law Tribunal (NCLTL) declined at Rs 3,816 crore and Rs 8,828 crore respectively. PCR on the list 1 and 2 was very healthy at 90 percent and 72 percent respectively as at end December increasing the likelihood of write backs in future.

Additionally, the bank’s disclosed pool of loans to corporate and SME rated BB and below (potential stress) declined to Rs 18,812 crore (equivalent to 3.3 percent of the loan book) which also include the IL&FS exposure.

Key negatives

CASA (low cost current and savings accounts) ratio dipped marginally to 49.3 percent as at end December as growth in CASA deposits lagged growth in term deposits. Still overall performance on liability continues to be impressive.

Current stock price factors in known issues; valuation rerating to continue

In May last year, management articulated its strategy to deliver consolidated RoE of 15 percent while improving NNPA to 1.5 percent and maintaining provision cover above 70 percent by June 2020.

With its 2020 vision in place, investors should expect much lower NPA formation and normalised credit cost in FY20, mid-teen loan growth, steady margin and a fast journey to reach RoE of 15 percent. With a strong capital adequacy (Tier I capital ratio at 15.14 percent), we don’t see many constraints in delivering its targets.

With a potential improvement in return rations, the current valuation of its core book at 1.5 times FY20e P/BV looks compelling. In fact, ICICI bank is trading at significant discount of more than 30 -40 percent relative to its closest corporate lending peer having similar asset quality issues.

The indictment of Chanda Kochhar by internal enquiry committee doesn’t alter bank’s growth plans. Appointment of  Sandeep Bakshi as CEO had lifted the cloud of management related uncertainty. Q3 earnings indicate a clear sky making ICICI Bank an exciting yet relatively safe investment bet for long term.

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Source: Moneycontrol