Stop Gambling in the Stock Market. Be an intelligent and confident investor.
See what the professionals see with financial analytics, charts and valuation models.
Fundamental Analysis and Stock Valuation Simplified. Learn more.
See what the professionals see with financial analytics, charts and valuation models.
Fundamental Analysis and Stock Valuation Simplified. Learn more.
ICICI Bank Ltd. | ICICIBANK | NSE - Banks
INR in Million. Fiscal year ends in March. Figures are consolidated and restated.
Intrinsic value and stock valuation
Market Capitalization and Net Worth
Net worth also called as "Shareholder Equity", "Stockholder's Equity", "Net Asset Value" or "Book Value". It essentially means total assets minus total liabilities.
When you buy shares of a company, you are essentially buying a share of the company's net worth and a share of the company's future cash flows. If the company's net worth and cash is growing, the value of the company is going up because of which the company's share price goes up.
The above chart displays the share price and the book value per share. Generally the share price is above the book value price but during a recession (e.g. 2008) or due to some other factors, the share price can go below the book value per share. Smart bargain investors buy shares when the current market price is below the book value i.e. the stock is undervalued but at the same time you have to ask yourself why the current market price is going below the book value price. Is it because of some serious fundamental problems with the company?
Market Price : 1150.40 Rs. on 30-April-2024
Market Capitalization of ICICIBANK is 8.01 Trillion Rs.
Market Capitalization = Share price x No. of shares ( theoretical price at which you can buy the whole company )
Enterprise Value = Market Capitalization + Short term debt + Leases + Long term Debt + Preferred Stock - Cash in hand
Enterprise Value = Market Capitalization + Short term debt + Leases + Long term Debt + Preferred Stock - Cash in hand
Stock Valuation Models
Valuation in simple words is the process of estimating what something is worth. The valuation models given below are used by investors like Warren Buffet, Investment bankers and private equity firms as the starting point for evaluating potential mergers and stock acquisitions. You can use the same models to figure out if the current market price of the stock is overvalued or undervalued. Do not blindly buy or sell stocks just because one valuation model tells you to although if three or more models come to the same result then it may be wise to act on that decision.
Remember investing is a combination of science and art. These models give you an estimate which may or may not be accurate. There are some things which cannot be captured by these models such as the value of a brand name or the value of a patent and other intangible assets. So keeping these few things in mind explore the section below and see the real picture of the company as seen by market professionals.
Current & Historical Price to Earnings Ratio of ICICI Bank Ltd.
The P/E ratio looks at the relationship between the stock price and the company's earnings. The higher the P/E the more the market is willing to pay for the company's earnings.
By comparing price and earnings per share for a company, one can analyze the Market's stock valuation of a company and its shares relative to the income the company is actually generating. It is usually used to compare the P/E ratios of one company to other companies in the same industry sector. Ideally you should avoid investing in a company which has a PE Ratio greater than 20.
ICICI Bank Ltd. Average PE Ratio is 20.8. Current PE is 13.4% higher than long term average
PE Ratio Valuation
Price per share = 10 Years Average P/E Ratio x EPS
ICICI Bank Ltd.'s average P/E ratio for the last 10 years was 20.8 times, it's EPS is Rs.48.9 which gives us an intrinsic value of Rs.1,015 per share.
Discounted Cash Flow Valuation
The purpose of a discounted cash flow is to estimate the sum of the future cash flow of the business and discount it back to the present value.
We start with an assumption that we want to earn 10% on our investment yearly. So the question we are going to answer is "What price can I pay for ICICI Bank Ltd. if I want to earn 10 percent annual return". We use the multi-year median Free Cash Flow growth rate for DCF valuation. The discount rate and the estimated cash flow numbers are then used in the net present value formula which calculates the intrinsic value of the company as well as the intrinsic value per share.
Multi Year FCF Compound Annual Growth Rate
| Years | 2014-2020 | 2015-2021 | 2016-2022 | 2017-2023 | 2014-2019 | 2015-2020 | 2016-2021 | 2017-2022 | 2018-2023 |
|---|---|---|---|---|---|---|---|---|---|
| FCF Growth | 27.2 % | 14.8 % | 13.9 % | 7.7 % | 19.3 % | 10.7 % | 17.5 % | 9.9 % | 11.2 % |
Multi-Year Average FCF Rate : 13.89%. This is the rate which will be used for forecasting free cash flow values for the year 2024 to 2033.
Terminal growth rate : 0%. We take 0% because we just want to forecast values till 10 years in the future and not beyond that to be conservative.
Free Cash Flow : Forecast values table (Million)
| Year | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 |
|---|---|---|---|---|---|---|---|---|---|---|
| FCF Forecast | 371,398 | 422,968 | 481,700 | 548,586 | 624,760 | 711,512 | 810,309 | 922,824 | 1,050,963 | 1,196,895 |
ICICI Bank Ltd. is expected to generate Rs. 7.14 Trillion over the next 10 years.
We want to earn 10% or more on ICICI Bank Ltd. so we have to buy that cash at a discount today. After all, we are buying Rs. 2.21 Trillion of 2023 networth(equity) and the right to Rs. 7.14 Trillion of future cash.
Net Present Value(NPV) of ICICI Bank Ltd. is 6.18 Trillion Rupees.
DCF Intrinsic value per share : 887 Rs.
EPS Growth Valuation
Similar to Free cash flow valuation model we project the Earnings Per Share for the next ten years. Then we use an estimated Price/Earnings ratio to calculate the future stock price which is then discounted back to present value giving us an intrinsic value per share.
Multi Year EPS Compound Annual Growth Rate
| Years | 2019-2021 | 2020-2022 | 2021-2023 | 2019-2022 | 2020-2023 |
|---|---|---|---|---|---|
| EPS Growth | 103.1 % | 56.4 % | 33.9 % | 76.3 % | 48.9 % |
Multi-Year Average EPS Growth Rate : 56.4% Sustainable growth rate : 20.0%.
Note - We will take 20% as the growth rate if the actual average growth rate is above 20%.
Terminal growth rate : 0%. We take 0% because we just want to forecast values till 10 years in the future and not beyond that to be conservative.
Discount rate : 10%.
EPS Valuation Intrinsic fair value price per share is Rs.1,980
Graham Number Valuation
Graham Number was created by Benjamin Graham, the father of value investing. It calculates the stock's maximum fair value based of its Earnings per share and Book value per share. Stocks trading below their Graham Number may be undervalued.
Graham's Fair Value Price = Square Root of (22.5 x EPS x BVPS)
ICICI Bank Ltd.'s intrinsic fair value price per share is 585 Rs.
Note - Graham number is useful for companies which depend more on their tangible assets (e.g. Manufacturing, Oil & Gas). It is not so useful for companies which depend more on their intangible assets (e.g. Pharma, IT).
Intrinsic Fair Value Share Price Range for ICICI Bank Ltd.
| DCF valuation | Rs. 887 |
| PE Ratio valuation | Rs. 1,015 |
| EPS Growth Valuation | Rs. 1,980 |
| Graham Number | Rs. 585 |
| Book Value | Rs. 311 |
| Average Fair Value | Rs. 951 |
| 30% Margin of Safety | Rs. 666 |
| Current market price | Rs. 1,150 |
Note - Margin of safety is a principle of investing in which an investor purchases stock only when the market price is significantly below its intrinsic value. This difference allows an investment to be made with minimal downside risk. The term Margin of Safety was introduced by Benjamin Graham (Warren Buffett's teacher) in his famous book The Intelligent Investor