Diwali portfolio tweak: ICICI Bank replaces Fiberweb India

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26 Aug, 2025 12:21

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Moneycontrol Research

The recent rise in crude prices, besides potentially disrupting the Indian economy’s fiscal math, seems to have caught some companies off guard. Brent crude prices, which have a major bearing on raw material costs, could dampen earnings visibility and lead to a near-term margin compression for companies across a wide range of industries.

Taking note of this situation, we have chosen to exclude Fiberweb (India) from our Diwali portfolio. The company manufactures synthetic fabric for purposes such as hygiene, crop protection, industrial filtration, water treatment, among others. Close to 80 percent of its revenue is derived from commoditised products, thereby exposing it to crude oil fluctuations.

Additionally, Fiberweb’s product offerings are pretty niche and capacities for the same are very low in India vis-à-vis global players. The company caters to clients primarily based out of India. Given the business-to-business (B2B) nature of contracts and stiff competition from entities in international markets, it may be hard to pass on the entire increase in input costs.

Post its fourth quarter earnings and management’s 2020 roadmap, we are relatively bullish on the prospects of ICICI Bank. We deem it to be a worthy inclusion in the portfolio given its attractive valuation.

In the past few years, the bank has steadily diversified and de-risked its asset book while building an enviable liability franchise. Recently, the management communicated targets that it endeavours to achieve by June 2020.

With a large part of bad asset already recognised, investors should expect much lower non-performing asset formation in FY19, mid-teen loan and matching CASA growth, steady interest margin and commencement of the journey to reach 15 percent return on equity. With a strong capital adequacy (Tier I capital ratio at 15.9 percent), we don’t see many constraints in delivering its targets. A gradual normalisation of credit cost by June 2020 is also on the cards.

With a potential improvement in return rations, the current valuation of its core book at 1.1 times FY19e P/BV looks compelling. In fact, it is trading at significant 30-40 percent relative to its closest corporate lending peer, which is also facing asset quality and management-related issues. The ongoing Videocon loan controversy with respect to its MD and CEO may remain a near-term overhang. Nevertheless, investors should look at the counter as a long-term bet as it is reasonably priced.

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