ICICI Bank’s last quarter results were slightly disastrous by most standards, and therefore the stock markets decided to ignore them completely. I nearly did myself, until a few minutes ago. here’s the quarterly EPS (Trailing 12 month data used so that i don’t miss anything) and the growth charts of the EPS itself.
The stock trades at 830, and that’s a P/E of 24.64 on the trailing 4 quarter EPS. The argument that markets price “expectations seems to be completely off; for most of the period from 2005 to now, the stock has traded at a P/E of 15 or more, and the annualized growth rate from 2005 (Q3 TTM EPS of 26.32) to now is a mindboggling 5%.
AxisBank and HDFCBank also get large P/Es. AxisBank has grown EPS from Rs. 15 (TTM) in 2005 to Rs. 60 today. HDFCBank from Rs. 23 to Rs. 62. One might think they deserved the high P/E for their results.
ICICI on the other hand has just stagnated. One year back, I posted about how their EPS growth was consistently low. A year later nothing has changed; in fact, the December quarter showed a dip of 9% in their Earnings Per Share.
Yet, the stock has moved up from the last year’s price of Rs. 363 to Rs. 830 today. It’s a remarkably optimistic market, isn’t it? But perhaps I look at the wrong data: the past. The future is a better thing to look at, but I’ll be the first to admit I don’t know what it looks like.
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>Good one.
But I don’t think anybody is going to care about your concern. ICICI Bank is a good short, had been a good short. But our market doesn’t care about any logic. See, all your logic would tell you to go short on this stock, but you never know it could cross even 1000 without any logic. It’s really frustrating !!!!
Anyway, other day I was evaluating my investment strategies and surprisingly I came to a completely different conclusion which is totally contrary to my believes. I used to believe that stock-market would always give better return in long term and by long term I mean at least 5 years. But the return of my last three years investment forced me to question by believes.
I think those days of 200-300% of returns from stock market are over. We are already trading at a PE more than 20. How far profitable our companies could be in near future? I think we saw super spike in our earnings because earlier we were badly unprofitable. Those huge returns were because of low base effect. Gradually Indian market is maturing; the depth of our market is increasing and becoming more efficient. And as Indian market become more mature, it would become more rational, less volatile and would never give a PE of 20 for a situation like this. (The hedge fund, for which I work, simply refuses to play in Indian market just because of such huge risk. A same company trades in US or Europe market almost as half PE. So why invest in Indian stock?).
I may be totally wrong with my logic which is as follows – How max sensex could climb? At best, our companies could get as much as profitable when sensex was 22000. Ok, may be better than that. 25000? No, more better. 30000? Seems a good target for me for next 4-5 years. Theoretically EPS can be infinity, but practically it would face a ceiling. And I think that ceiling is 30000. (See it’s just a theory of mine, you can defend or refute this with more profound logic far better than me.). Either EPS can’t move further north or market would not be willing to give more PE.
There is a high probability that it could behave life Japanese market after 5-10 years. What you say?
02.20.10 at 1:21 PM
>my question to you deepak is i always see u recommending what not to do. I never see u stating what to do.
It would be nice to know what stocks are you recommending to buy.
02.20.10 at 5:46 PM
>hi Deepak,
this is Subramanyam of Subramoney. A few days ago I blogged about 'shareholder value destruction: guaranteed' on my blog. I have added what u have said about Icici bank as a link to that article – do take a look!
http://www.subramoney.com/talk/wp-admin/post.php?action=edit&post=3344&message=1
04.02.10 at 5:52 AM
>Hi Subramanyam – Thanks. That link is perhaps the admin link, I guess you wanted to post this one:
http://www.subramoney.com/2010/03/shareholder-value-destruction-guaranteed/
04.02.10 at 6:07 AM