ICICI Bank Analysts Mostly Bullish Despite Probe, Profit Miss
(Bloomberg) -- Analysts maintained overwhelmingly bullish calls on ICICI Bank Ltd. even after the bank missed profit expectations and a panel submitted a report that alleged corporate governance violations by former top management.
India’s second-largest private-sector lender plans to claw back former Chief Executive Officer Chanda Kochhar’s bonuses and stock options after violations of the company’s code of conduct were found. Separately, the bank reported net income of 16 billion rupees ($225 million) for the three months ended December compared with the 19.7 billion rupee average analyst estimate compiled by Bloomberg.
The company’s American depository receipts surged 9.2 percent, the most since May 2014. The bank’s India-listed shares are up 5.8 percent so far this year.
The stock has 49 buy ratings versus just 2 holds and 1 sell. Here’s what analysts had to say after the latest results and news.
Jefferies (Nilanjan Karfa)
“We fear legal options being pressed from both sides, pulling in current/past executives, and which at best would be a nuisance and noise, to a worst-case situation of digging out unpleasant issues and being a drag to the stock price.”
Jefferies maintains a buy rating and raises its price target to 450 rupees from 385 rupees, noting improvement in asset quality, growth and core profitability.
“ICICI Bank continues to show promise with trending lower new nonperforming loan formation, and balance sheet growth with higher granularity on both asset and liability side.”
Citigroup Global Markets (Manish Shukla)
Pre-provision operating profit and lower provisions should help the bank’s return on equity. Citi lowers its profit-after-tax estimate 24 percent to factor in delay in resolutions by the National Company Law Tribunal. It maintains a buy rating and raises its price target to 450 rupees from 390 rupees.
Morgan Stanley (Anil Agarwal)
“Impaired loans declined and coverage increased to about 60 percent. Provisioning catchup is done, implying normalized earnings” from the first quarter of next fiscal year.
The report on Kochhar submitted to the board “has no implications for the bank’s published numbers.”
“Valuation still implies asset quality stress, which we think is now firmly behind the bank. Foreign ownership has continued to trend down and is now at a 15-year low.”
Morgan Stanley maintains an overweight rating on the bank and lifts its price target to 525 rupees from 510 rupees. The broker recently listed ICICI as one of 10 emerging markets bank stocks to invest in this year.
Target Investing (Sameer Kalra)
“Though nothing has been mentioned of the impact of the report on the financials, we believe this further enhances the possibility of further investigation of other deals that Ms. Kochhar had during the position in the bank and increases chances of CBI investigation to probe further.”
Goldman Sachs (Rahul Jain)
Goldman notes a “strong 3Q operating performance” with better-than-expected profit after tax and the problem of nonperforming loans mostly resolved.
“We believe ICBK is well positioned to deliver an average ROA of 1.8 percent and an average ROE of 16 percent” over the next two fiscal years, driven by improving net interest margins.
Bloomberg Intelligence (Diksha Gera)
ICICI’s 2.7% profit drop may be misleading as pretax profit climbed 28%, led by a strong revenue rebound. Provisions will likely stay elevated in the next one or two quarters as big stressed exposures get resolved.
Overall asset quality should be positive as corporate exposure rated BB and below fell 14% in fiscal 3Q.
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