ICICI Bank a Good Stock Bet - but take the long view!

The Indian economy has been exhibiting strong growth and the country’s stock market has surged to unprecedented highs (except for this past week of course). Although concerns surrounding the US slowdown play a role, investor sentiment has remained bullish. The banking sector is now in the limelight. According to a report by report by McKinsey & Co, Indian banks generated a CAGR of 36.76% in returns to shareholders between January 2000 and October 2007, versus 24.03% for the entire Indian stock market and 17.57% for Chinese banks.

One of the Indian banks that is aiming big is ICICI Bank Ltd (ICBK). The nation’s largest private lender has an ambitious target of being among the world’s top ten banks within five years. The Economic Times quoted the company’s MD and CEO KV Kamath as saying in an interview that the India growth story is unlikely to fade for another 15 years and that, if the country’s GDP were to grow at 10%-11%, it would not be surprising to see banks and financial services sector growing at 30% annually. Moreover, ICICI Bank is all set to make its presence felt in the global arena. While the company already has foreign assets worth $19 billion, it aims at its overseas business accounting for at least one-fourth of its balance sheet in 2008.

The company said last week that it has plans to list four of its units, its brokerage arm, a housing finance unit and two insurance subsidiaries. The company plans to begin the process within six months, with the listing of ICICI Securities, which would be followed shortly by insurance units ICICI Prudential and ICICI Lombard.

The company has recently been making a foray into the domestic healthcare market. ICICI Venture, which is the largest domestic private equity fund, has said that it would be getting a foreign partner to invest $80 million in its 100% owned subsidiary, I-VEN Medicare. ICICI Venture has invested $80 million as equity in I-VEN Medicare and plans to raise $90 million in debt. The total capital base of $250 million would be used to invest in regional healthcare companies. RFCL Ltd, which is wholly-owned by ICICI Venture, has acquired the business division of Godrej Medical Diagnostics for an undisclosed amount. The acquired operations are expected to achieve 25% growth for the next 3-4 years. RFCL has also agreed to acquire Chennai-based veterinary company Alved Pharma and Foods in a stock deal. Alved Pharma and Foods is expected to record sales revenues of Rs18 crores for fiscal 2008 and has significant exports to the Middle East and Africa, RFCL said.

So, ICICI Bank has ambitious plans and wants to aggressively extend its oversees footprint. The Indian market also offers immense growth opportunity and robust growth in sectors like insurance and real estate offers significant potential. However, the company’s shares have been on an uptrend since mid-September and have climbed about 70% over the past year. While the shares are trading uncomfortably close to their 52-week high, the recent surge in provisioning by the company is a concern area.

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