icici, or you don't see, is the question

ICICI posted its latest quarter results. Expectations you can say, and the stock, prior to the announcement, jumped 2.31% to Rs.292.25 per share. What you are going to see on Monday is anyone's guess, after all, the bank has posted its quarterly loss in a very long time. But then it could have done that past quarter or even past year. If you acknowledge bad assets, you gotta throw them into the expenses box, and if you delay doing that, a day will come to force you into it. Didn't I tell ya? That's that; what about it now? There will be a number of opinions on buy or sell. Here's my take.

The results aren't that bad actually. Rs.61 b net interest income was better than the previous quarter and much better than the previous year's same quarter. Fee income of Rs.27 b was good enough. Most banks have had to take the hit on their treasury portfolio due to the interest rate mechanisms. ICICI chose to book them all in this quarter. Last quarter showed robust treasury profits of Rs.26 b; previous year's same quarter had Rs.8 b profits. This quarter's Rs.7 b from treasuries is only modest, because there was Rs.10 b gains from Prudential Life Insurance stake sale; without stake sale, the losses would be higher. The operating profits stood like this: Rs.51.84 b during June 2017 quarter, Rs.75.14 b during March 2018, and Rs.58.08 b during June 2018. But then the bank took almost Rs.60 b in provisioning charges during the quarter leading to its historic quarterly loss on a standalone basis. Is that a bravo moment?

There are enough credits due to the bank and is legacies. It has always been a pioneer in looking at the growth prospects and adopting systems, technology, and procedures to cater to it. Other banks might have wanted to do the same, but well after ICICI embarked on it. As for now though, the bank is facing some tough times. 

For a bank, there are a few important metrics based on which we should deal with them. Return on assets measures how efficiently the bank is run considering its invested capital. Return on equity is how much its shareholders are going to get based on their investment. Both are important, but more important is how large is the debt compared to its equity capital. A disproportionate debt size can lead the bank into bankruptcy even after a small portion of its assets go bad. In this respect, ICICI bank is well positioned. With Tier 1 capital of over 15%, the bank is strong enough to look at credit growth. Its cost of funds and cost to income are acceptable. With average CASA of 46.10%, its costs of funds should remain stable. There is a drop in its net interest margin to 3.19%, and it must hope not to take it down any further. 

Even after heavy provisioning the quarter, the bank has about Rs.258 b in non-performing assets, which is over 4.50% in net NPAs. These are of course the result of making some bad decisions in the past; lending is a serious business. The bank also has some Rs.14 b in restructured assets. If we clean up its balance sheet, and thereby its equity, we get a book value of Rs.129.83. The stock isn't cheap. 

For an investor to make money on this stock, the bank has to show credit growth with a low ratio of bad assets. A 15% growth rate, and a year's time, I don't see much happening with this stock. A two-year wait, and you might get better than risk-free rates. Over three years there is a good chance that the bank will turnaround and the investor will get a fair deal.

But as we know, who has the patience to wait, isn't that a bad virtue?