Five years ago, ICICI Bank closed at Rs 213.11. It recently traded at Rs 232.80. It’s barely judged in five years. In the mean-time earnings have grown from Rs 10.65 in the year to 31^st March 2011, to an expected Rs 21.53 in the year to 31^st March 2016. Thus while the company appears to have delivered, the market has not. Why?

Numbers don’t tell you what to do. But they do guide you towards doing additional research to help you decide what you ought to do. ICICI Bank will be reporting results on 28^th January, 2016. India’s corporate balance sheets are stretched, and there is much fear in markets on account of rising non-performing assets. And this long known issue has influenced prices: particularly of big corporate lenders like ICICI Bank. I’ll leave you to determine whether the risk is reflected in the price, or whether there is more pain to come.

Here are some interesting data points:

Valuation

• Over the past decade, ICICI Bank has traded at a median trailing twelve month multiple of 17.08 (average 17.91) with a standard deviation of 6.14. The stock recently traded at Rs 232.80, which represents a multiple of 10.87. This level is just over one standard deviation below decade average levels. Assuming normalcy in the distribution over the long-term, this suggests that probability of a further contraction in the multiple is limited to below 12.58%. A reversion to decade median levels would take price up to Rs 365 (57% implied upside): at this level the stock can be viewed in a historic context as neither expensive nor cheap.
• Over the past decade, the Sensex has traded at a median trailing twelve month multiple of 16.47 (average 17.03). ICICI Bank has traded at a relative PE of 1 at median levels (average 1.04) over the past decade. Recently, the Sensex traded at a multiple of 17.43, compared with 10.87 for ICICI Bank. If ICICI Bank were trading at a historically consistent relative PE, the stock would be priced at closer to Rs 371 (59% implied upside).
• Over the past decade, ICICI Bank has traded at a median price to book multiple of 1.76 (average 1.92) with a standard deviation of 0.40.  The stock recently traded at Rs 232.80, which represents a multiple of 1.56. This level is just below one standard deviation below decade average levels. Assuming normalcy in the distribution over the long-term, this suggests that probability of a further contraction in the multiple is limited to below 18.82%.  A reversion to decade median levels would take price up to Rs 262 (13% implied upside): at this level the stock can be viewed in a historic context as neither expensive nor cheap.

The valuation risk as measured looks to be low. Is your fundamental evaluation consistent with what the numbers imply?

Earnings Growth

• Over the past decade, ICICI Bank has delivered annual average earnings growth of 15.19% (14.86%), with a standard deviation of 12.01%.  With earnings expected to come in at 21.53, earnings growth for the year to 31^st March 2016 is 2.82%, which is about one standard deviation below decade average earnings growth. Assuming normalcy in the distribution, a decline in earnings growth to below 2.82% comes with a probability of below 15.15%.
• Earnings growth projected for the year to 31^st March 2017 is at 24.84, which represents a growth expectation of 15% for the upcoming fiscal year. This is in-line with the decade average. It also represents annualized growth rate of 8.9% for the two years ended 31^st March 2017, which assuming normalcy in the distribution, suggests that the risk of downward revisions are limited to below 30%.

The risk to earnings growth as measured looks to be neutral, tending towards low. Is your growth evaluation consistent with what the numbers imply?

Animal Spirits

• The stock traded 3.63% below its average weekly close price over the past 4 weeks. Over the past five years, the stock has traded on average 0.10% over its average weekly close price over the past 4 weeks, with a standard deviation of 3.91%. Assuming normalcy in distribution, the odds of a decline to over 3.63% below its average weekly close price over the past 4 weeks is 17%.
• The stock traded 7.70% below its average weekly close price over the past 10 weeks. Over the past five years, the stock has traded on average 0.45% over its average weekly close price over the past 10 weeks, with a standard deviation of 7.05%. Assuming normalcy in distribution, the odds of a decline to over 7.7% below its average weekly close price over the past 10 weeks is 12.4%.
• The stock traded 11.69% below its average weekly close price over the past 20 weeks. Over the past five years, the stock has traded on average 0.90% over its average weekly close price over the past 20 weeks, with a standard deviation of 9.67%. Assuming normalcy in distribution, the odds of a decline to over 11.69% below its average weekly close price over the past 20 weeks is 9.63%.
• The stock traded 18.08% below its average weekly close price over the past 40 weeks.  Over the past five years, the stock has traded on average 3.35% over its average weekly close price over the past 40 weeks, with a standard deviation of 13.82%.  Assuming normalcy in distribution, the odds of a decline to over 18.08% below its average weekly close price over the past 40 weeks is 6.05%.
• The stock traded 21.05% below its average weekly close price over the past 52 weeks. Over the past five years, the stock has traded on average 5.98% over its average weekly close price over the past 52 weeks, with a standard deviation of 15.05%. Assuming normalcy in distribution, the odds of a decline to over 21.05% below its average weekly close price over the past 52 weeks is 3.63%.

The technical picture looks ugly. However, risk of further deterioration as measured looks to be low.  Is your evaluation of technical conditions consistent with what the numbers imply?

Divide Rupee values by 68 to arrive at US Dollar value. Multiply US Dollar value by 2 to arrive at per ADR estimates.