It says that while both, ICICI and Axis, won't require capital in the near term, the former is in a better position.
Macquarie advises investors to go for ICICI Bank against Axis on valuation differences. Hoping for some short term opportunity in ICICI Bank, the brokerage says ICICI is trading close to historical high discount of 30 percent relative to Axis, widening the gap from 11 percent over a 12-year period.
It says that while both, ICICI and Axis, won’t require capital in the near term, the former is in a better position. ICICI’s teir-1 ratio as of FY16 is higher at 13.1 percent while Axis Bank’s is 12.5 percent for Axis. However, added cushion comes for ICICI from its stake sale/IPO in life insurance subsidiary plus repatriation of excess capital from subsidiaries.
Axis Bank had reported decline in its net profit in Q4 for first time in over 40 quarters due to high provisioning for bad loans. The company's asset quality were steady, with the gross non performing asset (GNPA) and net NPAs coming at 1.67 percent (versus 1.68 percent) and 0.7 percent (vs 0.75 percent). Provisions jumped 64 percent year-on-year, to Rs 1168.3 crore.
ICICI Bank's fourth quarter's profit fell sharply by 76 percent to Rs 702 crore, impacted by exceptional provisioning of Rs 3,600 crore but strong other income, operating profit and tax refund helped the company make profit in Q4. Provisions for bad loans during the quarter increased significantly by 147.35 percent. Asset quality also weakened in March quarter with gross non-performing assets (NPA) rising sharply to 5.82 percent (from 4.72 percent QoQ and 3.78 percent YoY) and net NPA climbing to 2.98 percent (from 2.28 percent QoQ and 1.61 percent YoY).
Macquarie says that ICICI’s disclosure of watch-list amounts to 5 percent of its overall exposure versus 6 percent of customer assets for Axis Bank.
According to the brokerage, the main issue for ICICI is that loan growth is always likely to be 300-400 basis points (bps) lower than Axis Bank as ICICI has 21 percent of the business coming from international branches which are not growing.
“Therefore overall loan growth gets pulled down and consequently lower leverage and lower pick up in return on equity. We believe this aspect is more than adequately captured in the valuation differential between the two now,” it says in a report.
Macquarie has 8 percent upside to ICICI and 7 percent downside to Axis Bank from current levels.
At 10:39 hrs ICICI Bank was at Rs 248.50, up Rs 5.15, or 2.12 percent while Axis Bank was at Rs 531.80, down Rs 2.30, or 0.43 percent on the BSE.
Posted by Nasrin Sultana
Data Chart by Ritesh Presswala