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ICICI: Slowdown catching up

Jan 24, 2002

Downturn in industrial activity was reflected from a marginal growth of 2.3% in ICICI's income from operations in third quarter. Its net NPAs to advances ratio too increased to 5.3% as on December 2001 (from 5.2% as on March 2001) and net NPAs increased by 3% to Rs 31 bn. Its operating profits however, flared up by 16% backed by control on operating expenses and lower interest expenses.

(Rs m)3QFY013QFY02Change9mFY019mFY02Change
Income from operations 21,990 22,500 2.3% 64,850 69,600 7.3%
Other Income 470 280 -40.4% 820 870 6.1%
Interest expense 17,620 17,580 -0.2% 51,120 54,340 6.3%
Operating Profit 3,490 4,050 16.0% 11,180 12,780 14.3%
Operating Profit Margin (%)15.9%18.0%17.2%18.4%
Other expenses 880 870 -1.1% 2,550 2,480 -2.7%
Provisions and contingencies1,1801,2203.4%3,3203,120-6.0%
Profit before Tax2,7803,11011.9%8,68010,53021.3%
Tax 250 550 120.0% 740 1,890 155.4%
Profit after Tax/(Loss) 2,530 2,560 1.2% 7,940 8,640 8.8%
Net profit margin (%)11.5%11.4%12.2%12.4%
No. of Shares 785.0 785.0 785.0 785.0
Diluted Earnings per share* 12.9 13.0 13.514.6
P/E Ratio 3.9 3.5

During the quarter, ICICI's fund based income increased by 4% and surprisingly, fee based income dropped sharply by 20%. For the first nine months, ICICI's fee based income grew by 13%, accounting for 6% of income from operations. The reduction in interest expenses could be attributable to declining interest rates. ICICI has already repriced its safety bonds at lower rates and the institution's lending rates seems to have declined less than proportionately. This coupled with lower operating expenses influenced a strong growth in operating profits. ICICI's cost to income ratio declined to 15% as on December 2001 from 18% in the comparable previous period.

ICICI's bottomline growth was however, curtailed due to a 40% fall in other income and triple digit growth in tax figure. During 3QFY01, ICICI booked capital gains of Rs 370 m as compared to a capital loss of Rs 40 m in the current quarter. Tax provision for the first nine months was inflated by Rs 950 on account of deferred tax provision as per the Accounting Standard - 22. Excluding this accelerated provision, net profits in nine months have actually shown a rise of 21%. On a consolidated basis, ICICI Group's earnings are higher by 18%.

ICICI's business growth remained subdued in the first nine months. Loans given by the institution grew by a marginal 1%. Investments of the institution witnessed a strong rise of 55% to Rs 62 bn. This could be as a result of its investments in insurance business.

At the current market price of Rs 51, ICICI is trading at a P/E of 4x 9m FY02 annualised earnings. The institution has declared an interim dividend of Rs 5.5 per share which gives dividend yield of 10.8%. ICICI's capital adequacy ratio at 14.6% is likely to supplement its business expansion. ICICI expects to complete the reverse merger with ICICI Bank before the year end after it is approved by RBI.

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