Stock Pick From Banking Sector

Choice Scrip is a Blue Chip stock pick that is expected to give returns within a 6 months-1 year horizon. The recommendation is based on a fundamental analysis of the company.

The company recommended as the Choice Scrip for this issue is one of the largest Banking sector in the country. 

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Here Is Why:

•           User-friendly, innovative and technology-enabled service.

•           Divestment of 6 per cent stake in insurance business.

•           Attractive valuation among peers.

ICICI BANK

In the private banking sector, the government has increased foreign investment limit from 49 per cent to 74 per cent provided there is no change of control and management of the investee company. There is lot of traction in the banking sector as now foreign portfolio investors’ inflow may increase in the near future. The Reserve Bank of India (RBI) has also taken a series of steps to improve the quality of assets. The RBI governor is expecting the bankruptcy reforms to be introduced in the next session of parliament. Given this scenario, we have chosen to focus on one of the fundamental banks from India’s vibrant banking industry.

ICICI Bank, India’s second-largest lender, has phenomenal footprints in the banking industry. The bank has introduced India’s first digital bank, Pockets. The digital wallet of Pockets has over 2.5 million downloads, of which 70 per cent are non-ICICI Bank customers. The bank launched a new service for Pockets users, mVisa, a mobile payment solution for consumers and merchants. Its mVisa service will enable Pockets users to make cashless payments from their phones using debit cards by simply scanning mVisa Quick Response (QR) code at a merchant location without swiping the card at an EDC machine. The simplicity of this technology will allow the ICICI Bank to address the market gap and enable digital payments for an array of untapped categories such as home deliveries, cab services, and small merchants.

Recently, the Board of ICICI Bank approved the sale of 6 per cent shareholding in ICICI Prudential Life Insurance. The proposed transaction values the company at Rs 32,500 crore, with the bank holding approximately 74 per cent stake. After this sale, the holding will come to around 68 per cent. Its Prudential Plc, joint venture partner, will maintain its current share of approximately 26 per cent.

On the financial front, for Q2 FY16 the bank reported 13 per cent YoY growth in net interest income led by steady CASA mix at 45 per cent. Advances grew by 13 per cent YoY led by strong growth of 25 per cent in retail. The retail portfolio now accounts for around 44 per cent of the total loan mix. The asset quality remains stable in the quarter. GNPAs increased 5 per cent QoQ led by slippages of Rs 2,240 crore (of which Rs 930 crore was from restructured assets). The management re‐affirmed its guidance of stressed accretion to be lower in FY16 than FY15.

On the valuation front, ICICI Bank’s stock is available at price to book value multiple of 1.82x, which is quite attractive compared to peers like HDFC Bank available at 4.25x, Axis Bank at 2.45x, and Yes Bank at 2.66x. The bank has trailing 12-month (TTM) PE multiple of 12.57x, which is quite lower to the industry’s PE of 18.32x and available at a discount. Hence, we recommend buying this stock.