One of the frameworks which has served me well over the years in generating extraordinary returns is to identify companies where one can capture a high-growth phase and re-rating in valuation. There can be many circumstances which lead to this kind of occurrence. The primary condition is that it should be a good business but should also have a catalyst that can propel the business into a new growth phase. The catalysts could be owing to several reasons, including a change in management or change in the industry structure.
When a good business pivots into a new growth orbit, magic happens. A stock, typically, gets into its golden period and, in my experience, this phase, typically, lasts anywhere between three and ten years, depending on the company and the sector. Britannia, Aarti Industries are some stocks which have experienced such a phase.
I would like dwell on one such stock which, I think, is pivoting to a new orbit and, that is, ICICI Bank.
Weathering The Storm
ICICI Bank is one of the leading private sector banks with a huge customer franchisee and brand equity. It has a balanced business mix of retail as well as corporate franchise. However, it has been going through a difficult phase over the past decade, delivering 6% growth in PAT, while the stock clocked 3% CAGR return since 2008. During this phase, the bank was caught in a bad asset quality cycle partly because of the environment and partly owing to its own internal issues. The bank spent most its energy repairing rather than building. Despite the challenges, its customer franchisee didn’t fritter away and remained