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ICICI Bank: Strong future ahead - Views on News from Equitymaster
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  • Apr 19, 2001

    ICICI Bank: Strong future ahead

    ICICI Bank had reported healthy growth in its financials for the nine months period ended December ’00. The sharp rise in operating margins to 32% (from 19% in 9 months of FY00) fueled the profits growth. The bank recorded 84% jump in operating profits and 53% rise in net profits in the first nine months. ICICI Bank is expected to continue its growth trajectory for the full year result expected to be declared on April 26, 01.

    ICICI Bank became one of the largest private sector banks after the merger of Bank of Madura (BOM). The merger will be with effect from March 10, ’01 and consequently the merged accounts would reflect only one-month performance of BOM.

    We have projected a profit growth of 47% and topline growth of 53% for the year ended March ’01. This is on the assumption that profit and loss account will include only one-month financials of BOM. Also, the bank is likely to write-off most of the non-performing assets (NPAs) of BOM.

    150 branches of BOM which covers 90% of its business will is likely to be on ICICI Bank’s IT platform from September ’01. The combined network of branches will rise to 369 and ATMs to 475. The bank is aggressively expanding the ATM base to attract more retail investors. It plans to install another 350 ATMs by March ’02, most of them covering the BOM branches. This will certainly increase the bank’s other expenses (currently other expenses are 49% of operating profits including other income) but it will benefit the bank in attracting low cost retail deposits in the coming years.

    Financial snapshot
    (Rs m) FY00 FY01E Change
    Operating income 8,529 13,035 52.8%
    Other income 1,941 2,460 26.8%
    Total revenues 10,469 15,495 48.0%
    Interest expended 6,669 9,347 40.1%
    Operating profit 1,859 3,688 98.4%
    Provision & Contingencies 948 1,208 27.4%
    Other Expenses 1,533 3,013 96.5%
    Profit before tax 1,319 1,928 46.2%
    Tax 266 379 42.5%
    Profit after tax 1,053 1,549 47.1%
    Number of shares (m) 197 220  

    Key ratios
    Particulars FY00 FY01E
    Operating profit margin 21.8% 28.3%
    Effective tax rate 20.2% 19.7%
    Net profit margin 12.3% 11.9%
    Fully Diluted EPS (Rs) 4.8 7.0

    Recently the Calcutta Stock Exchange (CSE) invoked the guarantee amounting to Rs 160 m on the bank. ICICI Bank has sold the collaterals and recovered the full amount against the guarantee invoked by the CSE. The bank’s management has also stated that they do not have any exposure to co-operative banks except for Rs 15-20 m letter of credit exposure taken by BOM. ICICI bank is confident of recovering this amount from its customers and expects no extra provisions for the same.

    Investment income contributed 48% to ICICI Bank’s topline in FY00. Due to slide in the capital markets the bank might see some reduction in this stream of revenues. However, it is likely to be compensated by cash management services. BOM operates with high volumes in CMS, which is likely to benefit ICICI Bank in terms of growing the topline. Margins could however, come in pressure going forward considering the slowdown in the industrial productions resulting in low credit off take.

    At the current market price of Rs 181, ICICI Bank is trading at a P/E of 26 times and Price/Book value ratio of 2.7 times. The bank’s ROE is expected to improve significantly in the coming years with the strong performance in profits (ROE of 10.3% in FY01 and 15% in FY02). Still these are lower than HDFC Bank’s ROE of 23%.



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