Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
ICICI: Asset risk - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Sep 24, 2001

    ICICI: Asset risk

    International rating agency Standard & Poor (S&P) has affirmed its ĎBBí long term rating on ICICI with a negative outlook due to the risk of increasing bad loans and declining profits. Despite ICICIís efforts to improve the asset quality, it is still regarded weak by international standards.

    ICICI has large exposure to sectors including power, textiles and steel. Projects in these sectors are highly linked to the economic environment in the country. Deterioration in these sectors will have an adverse impact on ICICIís loan portfolio.

    The institution has successfully reduced the level of NPAs to 5.2% of net advances as March í01 by increasing the provision coverage to 50% from 34% in the previous year. During 1QFY02 also ICICI restructured assets aggregating Rs 14.4 bn and made provisions of Rs 320 m against these assets. This was reflected in a reduction in NPA ratio to 5.1% at the end of the June quarter. Disbursals to 'A' rated clients accounted for 92% of ICICI's total disbursements during the first quarter.

    A shift towards retail
    Break up of loan profile FY98 FY99 FY00 FY01
    Manufacturing sector 58.3% 49.2% 40.8% 35.1%
    Oil, gas and petrochem 8.7% 13.1% 12.6% 8.3%
    Infrastructure 13.8% 13.3% 13.6% 13.6%
    Corporate lending 19.2% 24.3% 32.2% 39.8%
    Retail lending 0.0% 0.1% 0.8% 3.2%
    Total 100.0% 100.0% 100.0% 100.0%

    However, given the delay in revival of the economy, ICICI is likely to see a rise in its gross NPAs in the coming quarters and recovery process could slow down. This could force ICICI to make higher provision for NPAs, consequently a rise in requirement of additional capital.

    Nevertheless, ICICI had a comfortable capital adequacy ratio of 15.1% as on June 30, í01. This is likely to facilitate the institution not only to clean up the balance sheet but also to grow its business operations. ICICI's disbursals in 1QFY02 grew by a marginal 6%. However, its retail finance disbursements doubled to Rs 11.4 bn and accounts for 3% of total assets. The institution is aggressively tapping the retail markets to diversify the loan portfolio and to improve the financial performance.

    At the current market price of Rs 48, ICICI is trading at a P/E of 4x FY02 projected earnings. Its current Price/Book value ratio of 0.4x is the lowest in the past four years. ICICI is expected to report about 50% growth in profits even after considering the higher provision for NPAs (but excluding the impact of deferred taxation). FII investment in ICICI (including ADRs) was 48% as on March í01. The RBIís recent decision to increase the FII limit to the sectoral cap could act as a technical factor to drive the stock price (after ICICIís board approves the increase in limit). However, fundamentals of the institution are highly linked to the performance of the sectors including steel, textile and power, which constitute major portion of its loans.



    Equitymaster requests your view! Post a comment on "ICICI: Asset risk". Click here!


    More Views on News

    HDFC: Red Flag in Developer Loans (Quarterly Results Update - Detailed)

    Aug 10, 2017

    HDFC starts FY18 on robust loan growth but asset quality slips on increased exposure to developer loans.

    Shriram Trans Fin: FY17 Ends on a Tepid Note due to Regulatory Headwinds (Quarterly Results Update - Detailed)

    Jun 22, 2017

    Demonetisation led slowdown coupled with shift to stringent bad loan norms keep Shriram Transport Finance on a slow wicket.

    Power Finance Corp: Alignment with RBI Norms Knocks Down FY17 Earnings (Quarterly Results Update - Detailed)

    Jun 14, 2017

    Power Finance Corporation earnings hit by RBI mandated higher provision on state government power generation projects where the recovery continues to be 100%.

    IDFC: Ends FY17 on a Healthy Note (Quarterly Results Update - Detailed)

    May 30, 2017

    IDFC regains its tempo in FY17 post the demerger of the banking business.

    HDFC: Conservative Provisioning tempers down FY17 earnings (Quarterly Results Update - Detailed)

    May 9, 2017

    HDFC ends FY17 on a tepid note as it remains conservative on the asset quality front.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

    Aug 4, 2017

    The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms