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A jewel among financial institiutions... - Views on News from Equitymaster
 
 
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  • Jun 5, 2000

    A jewel among financial institiutions...

    ICICI - the name now depicts a one stop financial shop - a Universal Bank. And it has taken some time for ICICI, earlier largely a term lending institution, to get there. ICICI is all set to capitalise on the growth opportunities that are being thrown up by the liberalisation of the Indian economy. It will also probably beat its direct competitors - Industrial Development Bank of India (IDBI) and Industrial Financial Corporation of India (IFCI).

    ICICI is India's premier provider of financial services. The key element of its business strategy is to focus on quality growth opportunities while maintaining its strength in corporate banking and building a strong retail franchise. It also emphasizes on conservative risk management practices and enhancement of asset quality by using the latest technology.

    The company has a presence in diverse segments of the financial market by way of its subsidiaries e.g. ICICI Bank, ICICI Securities, ICICI Brokerage, ICICI Venture, and others. ICICI aims to be India's first Universal Bank, a one stop financial shop.

    In recent months ICICI has given a thrust to its operations by entering into several alliances. One of the key ventures is with Satyam Infoway, the country's largest private sector Internet service provider. The venture is aimed at giving a boost to the e-enabling process of ICICI. In a similar vein it is setting up a payment gateway for secured B2B and B2C e-commerce transactions. For this it has tied up with Compaq and QSI. ICICI will be the first finance company to implement an e-commerce payment gateway in India.

    ICICI has also ventured into the credit cards business by forming a venture with Visa International. It is the second largest domestic player (after the State Bank of India) to enter the credit cards business.

    Not that the company is not capitalising on the opportunities thrown up by the new economy. It has floated ICICI Web Trade to make a foray into net trading. It is also offering mobile banking facilities to its customers using SMS technology in a tie up with Orange.

    ICICI reported an excellent financial performance for the FY2000. Its net profits witnessed YoY increase of 21% to Rs 12.1 bn while its income from operations jumped up by 18% to Rs 86.3 bn. Loan approvals increased by 37% to Rs 444.8 bn and disbursements went up by 34% to Rs 258.3 bn. In the past three years, ICICI's market share in respect of loan disbursed increased at an impressive CAGR of 31% and now stands at 50%. ICICI's capital adequacy ratio (CAR) increased to 17.1% as on March 2000 as compared to 12.5% in the previous year due to successful completion of its three-tier equity offering. Although the company seems to be in a comfortable position, any slowdown in economic growth and any rollback in reforms by regulators is likely to affect ICICI's future growth.

      ICICI IDBI IFCI
    Particulars FY99 % change FY99 % change FY99 % change
    Operating Profit 21.2 21.0% 13.3 -26.0% 4.4 -30.0%
    Profit Before Tax 11.0 7.0% 13.0 -28.0% 0.2 -95.0%
    Profit After Tax 10.0 6.0% 12.6 -16.0% 0.2 -94.0%

    At the current market price of Rs 131, ICICI is available at a P/E of 8.7 times its FY2000 earnings Its ADR at NYSE is trading at a 66% premium to its domestic price (1 ADR represents 5 underlying equity share). An interesting fact to note is that ICICI's current market capitalisation of Rs.92.9 bn is only 6% higher than current valuation of its long-term investments. Thus the entire business of the company is available at a negligible cost. Among the FIs, ICICI is best placed to compete successfully in the days to come due to its 'Universal Banking' model and new initiatives. Increasing cash generation, diversified business and recent developments in technology with strong brand equity will place the company one step ahead of its competitors.

    Particulars ICICI
    (NYSE)
    Bank of
    America
    Barclays
    Plc
    HSBC
    Holding
    NatWest
    Group
    Market Price (US $) 25.4 49 110 57.2 116.5
    P/E (x) 14.3 10.4 19.9 21.6 14.1
    Market Capitalisation ($ bn) 3.8 81.6 41.5 92.6 33.1

     

     

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