Feb 27, 2001|
ICICI: Capital gains to add luster
ICICI has decided to divest around 15% stake in ICICI Bank to a foreign strategic partner. The objective for divestment is to bring down the promoterís holding to around 40% from the current level of 55.7%, in accordance with the Reserve Bank of Indiaís licensing norms.
ICICIís stake in the bank, at 62.2% is slated to come down to 55% once Bank of Maduraís merger with ICICI Bank is completed. ICICI will be required to pare its stake further in order to meet the RBIís stipulated licensing norms for new banks. Accordingly, promoterís stake in new private banks should not be more than 40% by March 31, 2001. Since ICICI Bank cannot dilute the parentís stake through a domestic or an overseas issue, the only choice is roping in a foreign partner.
The unlocking of value in ICICI Bank is expected to add a significant gain to ICICIís profits. According to the calculations shown below, capital gain from the sale of stake is expected to add 26% to ICICIís bottomline in the current year (if the sale is concluded in the current year). We have assumed average price of last 6 months (Rs 156) for ICICI Bank to arrive the valuations.
|15% stake (shares in m)
|Value of stake
|Tax on gain
|Net of tax gain
|Benefits to ICICI
|ICICI's FY01E profits
|Net profit including capital gain
|% addition to profits
|Number of shares (m)
During the nine months ended December í00, ICICI has charged Rs 3.3 bn as provisions for non- performing assets. We have calculated our profits assuming a provision of Rs 6.1 bn for the year ended March í01. We expect ICICI to utilize the capital gains in cleaning up its balance sheet by making more provisions for its non-performing assets.
In FY00 ICICI has provided 11.7% of its net cumulative NPAs of Rs 40 bn to profit and loss account. In the current year it is expected to provide for 13%. Still the balance 87% of net cumulative non-performing assets remains to be provided. ICICI aims to bring down the current NPA ratio of 7.3% to 5% over a period of time through aggressive recovery process.
Improving asset quality
At the current market price of Rs 94, ICICI is trading at a P/E multiple of 6 times its FY01 projected earnings and a Price/Book value ratio of 0.7 times. Its current valuations are comparatively lower than its global peers. Considering the gains from sale of its stake in ICICI Bank, ICICI is trading at a P/E of 4.5 times. If we were to apply a discount of 60% to Citigroupís current valuations, ICICIís price could easily double from current level. But this depends on its ability to clean up its balance sheet and provide a fair view of the current profits.
To know more about comparative valuations
More Views on News
Aug 10, 2017
HDFC starts FY18 on robust loan growth but asset quality slips on increased exposure to developer loans.
Jun 22, 2017
Demonetisation led slowdown coupled with shift to stringent bad loan norms keep Shriram Transport Finance on a slow wicket.
Jun 14, 2017
Power Finance Corporation earnings hit by RBI mandated higher provision on state government power generation projects where the recovery continues to be 100%.
May 30, 2017
IDFC regains its tempo in FY17 post the demerger of the banking business.
May 9, 2017
HDFC ends FY17 on a tepid note as it remains conservative on the asset quality front.
More Views on News
Aug 17, 2017
A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.
Aug 21, 2017
Most Indians who cannot find jobs, look at becoming self-employed.
Aug 16, 2017
The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?
Aug 16, 2017
Ensure your financial Independence, and pledge to start the journey towards financial freedom today!
Aug 22, 2017
Post demonetisation, a cut in bank savings deposits rates was in the offing.
Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement. LEGAL DISCLAIMER:
Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here
. The performance data quoted represents past performance and does not guarantee future results.SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407