Are ICICI Bank Stocks Beneficial for Long-Term Investment?

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ICICI Bank is a private, multinational bank headquartered in Mumbai, India. It is known for its comprehensive range of banking and financial services and products. The bank caters to various segments like personal, business, corporate, and NRI, and offers various products such as accounts & deposits, insurances, loans, debit & credit cards, wealth management solutions, investment solutions, et cetera.

ICICI Bank is one of the largest banks in India and is right there on the top with the likes of HDFC Bank, the State Bank of India, and Bank of Baroda. It has a strong presence in the international markets and has established itself in the United Kingdom, Canada, the United States, Singapore, Sri Lanka, Qatar, United Arab Emirates, and Germany. Click here to know more about ICICI bank stock trends

ICICI Bank Limited Financial Performance

For the year ended on March 31, 2018, ICICI Bank reported its total income to be at Rs.72,385.5 crore, as against Rs.73,660 crore reported for the previous financial year. Of this, the lender’s net interest income and other income was disclosed to be at Rs.40,445 crore. On a y-o-y basis, this marked a decline of a little over 1.9%.

The company’s operating expenses grew y-o-y by 6.4% to Rs.15,704 crore. As for its total expenditure, it remained flat at Rs.47,644 crore sequentially. Considering the provisions and contingencies for the year, the figure stood at Rs.17,307 crore. In comparison to the previous financial year, this marked an increase of 13.8%.

Consequently, the company’s profitability was impacted owing to this increase in the provisions. ICICI Bank Limited reported its profit before tax to be at Rs.7,434 crore – a drop of 34.1% y-o-y. Similarly, its net profit after tax for the period was revealed to be at Rs.6,777 crore, as against Rs.9,801 crore reported at the end of the FY 2016-17. On a y-o-y basis, the company’s net profit has reduced by 30.9%.

The company’s basic earnings per share (EPS) also dropped down from Rs.15.31 to Rs.10.56, y-o-y.

Similarly, for the quarter ended on June 30, 2018, ICICI Bank reported its total income to be at Rs.18,574 crore as against Rs.16,847 crore reported for the corresponding quarter of the previous financial year. However, this increase in the revenues was offset by a marginal rise in the expenditure and a two-fold increase in the provisions and contingencies, y-o-y.

As a result, the bank reported a net loss of Rs.120 crore for the quarter in a stark contrast to a profit of Rs.2,049 crore stated on June 30, 2017.

ICICI Bank Asset Quality

For the year ended on March 31, 2018, the bank’s gross non-performing assets were disclosed to be worth Rs.54,062.5 crore, as against Rs.42,551 crore stated for the previous fiscal year. As a result, the bank’s gross non-performing assets ratio (Gross NPA) grew from 7.89% to 8.84% y-o-y.

Similarly, its net non-performing assets were worth Rs.27,886 crore as against Rs.25,451 crore reported for the previous financial year. The bank’s net NPA ratio came down from 4.89% to 4.77%.

ICICI Bank Balance Sheet

At the end of the financial year 2017-18, ICICI Bank reported a y-o-y growth of 15% in its balance sheet. Its current and savings account (CASA) deposits registered a 17% y-o-y growth to Rs.5,60,975 crore. Similarly, the bank’s advances also grew on a y-o-y basis from Rs.4,64,232 crore to Rs.5,12,396 crore. Of these advances, 57% were retail loans.

ICICI Bank Stock Trends

The stock price of ICICI Bank at the start of 2017 was approximately Rs.228 on the NSE. The shares gained marginally over the course of the first three months to touch the Rs.250 mark. Through the course of May and June, the shares gained another 15% to reach the levels above Rs.290. In June, the company announced a final dividend of 125%, in addition to issuing bonus shares in 1:10 ratio.

This announcement, however, was followed by a gradual drop in the share price. By late October, the shares had lost their recently made gains and as a result, the scrip went down to be traded in the Rs.260 region. However, in the leg of the year, the shares gained close to 20% to cross the Rs.300 mark. The closing price at the end of the year was Rs.314.

In early 2018, the stocks gained handsomely to reach their 52-week high at Rs.365.70 on the NSE. This peak, however, was then followed by a sharp drop in the prices. Over the course of February and March, the scrip lost more than 30% to slip down to levels at Rs.260. Through the months of April, May, and June, the shares gained marginally to be traded at levels close to Rs.300.

 

It wasn’t until July that the ICICI Bank shares went on a noticeable bull run and gained close to 15% by the end of August. However, in September, the shares shed those gains and went down to be traded at levels around Rs.300. As of September 25, the shares were seen trading at levels close to Rs.305.

Are ICICI Bank shares worth investing in?

As mentioned earlier, ICICI Bank is among the largest banks in the country in terms of assets and market capitalisation. The company is fundamentally strong and has delivered a strong performance, year after year. However, like many banks in India, ICICI Bank is struggling with the problems of bad loans. In fact, it is one of the few private sector banks that has been plagued with this issue.

 

Consequently, the NIFTY 200 bank has been compelled to increase its provisions and contingencies for the same and as a result, its profitability is impacted. Furthermore, the Reserve Bank of India (RBI) in its recent circular stated that the NPA problem is set to deteriorate further in the current fiscal year. At the same time, RBI has placed in certain guidelines and framework to curb bad loans issue. Therefore, while we may see poor profits from ICICI Bank in the coming quarters, the situation is likely to improve in the long run.

As the banking system in India incurs a paradigm shift from bad loans to a healthy growth, patient, long-term investors can rely on stock like ICICI to deliver good returns. However, before investing in this stock, it is strongly recommended that you research thoroughly.