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ICICI: Second quarter preview

Oct 15, 2001

ICICI is getting ready to become a universal bank. It has already indicated plans for reverse merger with ICICI Bank. Long term project lending, which until now was the main focus are of the institution is now gradually getting replaced with retail and short-term lending. ICICI posted better than expected first quarter results with 14% growth in profits and similar growth rates in income from operations. The growth was boosted by a spectacular rise (68%) in fee-based income. During the quarter ended September í01 also, ICICIís topline is expected to grow in double-digits, led by a strong growth rates in fee-based income. The institutionís operating margins are however expected to witness a marginal decline due to a pressure on yield on advances.

Financial snapshot
(Rs m) 2QFY01 2QFY02E Change
Interest Income 21,810 23,991 10.0%
Other Income 60 57 -5.0%
Total Income 21,870 24,048 10.0%
Interest & Depreciation 17,140 18,953 10.6%
Operating Profit 4,730 5,095 7.7%
Other Expenses 970 866 -10.7%
Profits Before Tax 3,760 4,229 12.5%
Provisions & Contingencies 990 1,089 10.0%
Tax 230 377 63.8%
Profits After Tax 2,540 2,763 8.8%
Equity shares (m) 785.3 785.3  

Key ratios
Particulars 2QFY01 2QFY02E
OPM 21.4% 21.0%
NPM 11.6% 11.5%
Cash EPS (Rs) 18.0 19.6
EPS (Rs) 12.9 14.1

ICICIís other income figure is likely to suffer due to relatively low income from capital market subsidiaries. ICICI Securities, which is the second largest subsidiary in terms of revenues, already witnessed a 25% drop in FY01 profits. Similarly, ICICI Web Trade, ICICI Capital and ICICI Brokerage Services are expected to show dismal financial performance in the September quarter.

The only silver lining is, ICICI Bank, which is expected to show strong financial performance (after the merger with Bank of Madura). ICICI now holds 46% stake in the bank, which it is required to dilute to 40% before the year-end. On a consolidated basis, ICICIís subsidiaries accounted for 10% of its profits in FY01. The ratio is expected to come down in the current year with the reduction of its stake in ICICI Bank and dismal capital market activity (which would trim earnings growth of subsidiaries).

At the current market price of Rs 46, ICICI is trading at a P/E of 4x and Price/Book value ratio of 0.4x FY02 projected earnings. ICICIís plan to merge with ICICI Bank is positive for the institution with a significant rise in asset base (about Rs 1,000 bn). The institution will then have enormous opportunities to cater to large corporatesí working capital and export credit demand (specially PSU oil companies).

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