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ICICI - Analyst meet synopsis

May 4, 2001

India's premier development finance institution ICICI reported a net loss of Rs 2.6 bn in the 4QFY01 compared to profits of Rs 4 bn in the corresponding previous quarter. The steep fall in the profits is attributed to the accelerated provisions of Rs 8.1 bn on account of non-performing assets. Financial performance:

  • ICICI's fund based income showed a rise of 7.7% in FY01 while fees and commission based income increased by 19%. The return of fee income is improving year on year leading to improvement in ROA. ICICI is leveraging its corporate relationship to the full extent by offering services covering all kinds of financial products.

  • Other income of ICICI fell by 33% largely due to lower dividend income from ICICI Ventures (drop of 49% in FY01). ICICI Ventures profits witnessed a considerable decline of 73% during the year. Dividend income was also lower on account of provision for Rs 1.5 bn for diminution in the value of investments. Excluding the profits of ICICI Bank, the consolidated drop in profits of the subsidiaries was 21%.

For detailed results click here

Retail initiative:

  • During the year ICICI consolidated its position in the retail market with a comprehensive range of innovative products and services. The share of retail disbursement increased to 11% in FY01 from 3% last year. It has gained market share in auto loans and home loans, expanding its customer base and asset portfolio. ICICI now provides auto loans in 70 cities and home loans in 51 cities. (auto loans account for 72% of total retail loan portfolio of ICICI.)

  • In its newly launched insurance business, ICICI has sold over 6,000 policies till March Ď01. The online trading business carried out by its subsidiary now has 84,000 registered customers with a market share of 60%. ICICI Securities, its web-trading arm however registered a decline of 25% in profits during the year.

Restructuring asset portfolio: In order to improve the long-term viability and de-stress the portfolio ICICI has diversified its loan portfolio. The institution is now focusing on infrastructure, oil & gas and services sector by reducing the concentration on manufacturing projects. Manufacturing loans, which formed 73% of their total loans, now accounts for 36%. ICICIís top 3 outstandings are from services, steel and power sectors.

Provisions for NPAs:

  • In the fourth quarter of FY01 ICICI made an additional provision of Rs 8 bn for non-performing assets. The institution has actually written off Rs 3 bn out of this amount, as the tax deductibility is available only on actual write-offs and not on provisions. ICICI would continue to provide higher provision in the next few years in order to clean up its balance sheet. It has decided to make a cumulative provision of 50% for NPAs in 3 years compared to 5 and a half-year as per the RBI guidelines. As a result provision coverage against NPAs would increase to 50% from the current 35%.

  • Textiles, manmade fibres and steel industry are the top three contributors to the total NPA portfolio. The NPAs from textile industry increased by 5% during the year to Rs 5 bn and from cement it grew 15% to Rs 1 bn.

  • In FY01, while net NPAs declined by 25% to Rs 30 bn due to higher provisions, even gross NPAs registered a de-growth of 0.5% to Rs 60 bn. Its net NPA to advances ratio now stands at 5.2% down from 7.6% in FY00. 92% of its approvals and 89% of its disbursals are now to ĎAí rated corporates, indicating an improvement in quality of asset portfolio. Higher bad loan provisioning clearly indicates ICICIís urge to achieve global standards. It will also help the institution in improving its image and enhance shareholder value.

At the current market price of Rs 87 ICICI is trading at a P/E of 4 times FY01 earnings (excluding the accelerated write off). Although, ICICI could take some time to show good growth in profits, its move to clean up the books by making higher provisions will certainly lead a re-rating in the stock.

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