ICICI: Private Indian Bank Is Attractive

I was a shareholder of the large private Indian bank, ICICI (IBN) a few years ago and enjoyed the stock as it ascended from nothing to something. Then I sold it. Having missed the move from the $30s to the mid-$70s, I am now revisiting the security for potential purchase. I do not relish trying to catch a falling knife (the chart of ICICI speaks for itself).

However, going swiftly below its 200-day moving average with price earnings down to about 26 (still a bit too high) puts this $26b and growing bank back on my radar screen.

ICICI Bank offers numerous and diverse products and services in the areas of commercial banking to retail and corporate customers in India and nineteen foreign countries. A branch opened in New York City last week. ICICI offers treasury and investment banking and other products like life insurance and asset management. Other operations for retail customers consist of lending and deposits, private banking, distribution of third-party investment products and other fee-based products and services. IBN also issues unsecured redeemable bonds.

The commercial division provides standard services that create diverse revenue streams. To keep the socialist government less contentious, ICICI has willingly opened locations in rural and inner urban areas of India, providing micro loans and banking service access for some of the poorest of India's citizens - not really profitable but politically astute.

Moving in another direction, ICICI acquired a successful private bank, Sangli Bank Limited in 2007 and over the past few ears has expanded internationally. I expect the international moves to pay off handsomely for the large Indian immigrant communities overseas and as a gateway for international corporate access to the dynamic Indian economy.

Trading at $45.38 per share, IBN has been hit hard by Indian real estate market woes and the temporary stalling of growth hurting many banks in a recessionary climate. Some are calling the Indian, Russian and Chinese stock markets a bubble that is likely to burst. I will not quarrel with the notion that these markets have come too far too soon, but the growth potential for Democratic India versus Putinism in The Russian Federation and Communism in China, is more compelling in my view.I BN will participate in this growth and also will likely increase its exposure, profits and credibility overseas.

Although IBN's growth rate places it amongst the best of banks, it does have major issues with efficiency and management effectiveness regarding return on assets. There is some risk that the present management may not be competent to take ICICI to the next level.I disagree.There are signs that management is learning from past errors and moving forward with shareholder interests in mind.Once the stock stabilizes in the $38 per share area that I suspect may be close to a bottom, it is likely that IBN will again join my portfolio.

This bank is in too lucrative a region, has too many good aspects to its story (especially moving ahead internationally) and has a lack of any real creative competition from other Indian banks to not rise up from the current smackdown.

Full Disclosure: The author does not currently hold a position in IBN.

Comments

[leviticus1935]

Have owned it since around $12, expecting many nasty pullbacks from time to time. Financial services has a long way to go in India. I agree this is a good time to look for an entry point.

[ratsharp]

the central bank policy in april ( where they could think of a repo rate cut) is the only possible trigger to stabilization of IBN price and a subsequent rise... else nothing seems to be going right .. slowdown in credit ( mortgage and commercial loan ..owing to higher spreads and a general feeling of wait and watch) ..increase in NPA's causing higher provisions, constraint of capital conidering their recent MTM losses internatonally ( with more to come), 35% incr in branches ( implying a near time increase in expense), rural focus (not clear yet how they plan to increase market or take market share from govt banks) . All in all the "mo" 's not there .. and since this is a sum of the parts ( where the parts like insurance etc. might take more time to divest) ...anything can happen to near time prices... so this falling knife can make you bleed and no one like's blood (other than the one on the street)

[jimmy46]

In the last 9 days it's lost $10 a share, are you buying now?

[TAS]

Yes. Around $35.

[Vin]

The stock is trading at 17x 2008 PE. Considering 20% earnings growth for 2008, the price appears fairly valued around $40.

Do you see the stock going back upto $70 sometime in 2008 or 2009? If so, why?

[galvatron]

38 was a good entry point. Excellent article. Stock is trading at 47 bucks and change now.