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ICICI Bank: Magnetic performance - Views on News from Equitymaster
 
 
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  • Oct 25, 2001

    ICICI Bank: Magnetic performance

    The merger with Bank of Madura (BoM), continued to power ICICI Bank quarterly performance. The bank's 2QFY02 earnings skyrocketed by 120% on topline growth of 62%. However, the results are not strictly comparable as 2QFY01 does not include BoM's financials.

    (Rs m) 2QFY01 2QFY02 Change 1HFY01 1HFY02 Change
    Interest Income 2,873 4,647 61.7% 5,709 9,330 63.4%
    Other Income 341 951 178.8% 654 2,223 240.2%
    Interest Expenditure 1,914 3,236 69.1% 3,896 6,422 64.9%
    Operating Profit (EBDIT) 960 1,411 47.0% 1,814 2,908 60.4%
    Operating Profit Margin (%) 33.4% 30.4%   31.8% 31.2%  
    Other Expenditure 716 1,393 94.6% 1,263 2,775 119.7%
    Profit before Tax 585 970 65.6% 1,204 2,356 95.7%
    Provisions & contingencies 224 13 -94.4% 365 469 28.5%
    Tax 61 296 388.6% 137 573 318.1%
    Profit after Tax/(Loss) 301 662 120.1% 702 1,314 87.2%
    Net profit margin (%) 10.5% 14.2%   12.3% 14.1%  
    No. of Shares (eoy) 196.8 220.4   196.8 220.4  
    Diluted Earnings per share* 5.5 12.0   6.4 11.9  
    P/E (at current price)   8.8     8.9  
    *(annualised)            

    As per our estimates, BoM seems to have contributed about 25% to ICICI Bank's total profits. If we were to exclude BoM's profits from ICICI Bank's 2QFY02 earnings, then also the bottomline has grown by about 68%. The growth is much higher than its peers, which reported their second quarter results recently.

    ICICI Bank's business volumes recorded splendid growth during the first half of the year. Total deposits jumped by 80%, YoY and 6.7% compared to 2HFY01 ending March '01. Saving account deposits also grew at a fantastic rate of 159%, YoY, accounting for 12.5% of its total deposits. During the first half of the current year, ICICI Bank added 1.1 m new customers taking the total tally to 4.3 m accounts. The share of bank in total deposits of the banking system increased to 1.5% from 1% in 1HFY01. Retail deposits now forms 67% of total deposits, which enabled the bank in reducing its average cost of funds to 7.4% (reduction of 10 basis points from 1QFY02).

    Despite a reduction in average cost of funds, the bank's operating margins declined by 300 basis points in the current quarter. This is due to the fact that interest on advances witnessed a lower growth of 49% (60% in 1QFY02) compared to a 69% rise in interest expenses. Impact of a slowdown in economy is clearly reflected in the bank's core interest income stream. On the other hand favourable debt market resulted in interest on investments rising by 95% and accounting for 52% of its total income (43% in 1QFY01).

    Interest income break-up
    (Rs m) 2QFY01 2QFY02 Change 1HFY01 1HFY02 Change
    Interest on advances 1,314 1,952 48.6% 2,499 3,849 54.0%
    Income from investments 1,248 2,436 95.2% 2,517 4,826 91.7%
    Interest on bal with RBI 307 232 -24.3% 679 561 -17.3%
    Others 5 27 415.1% 15 94 541.5%
    Total 2,873 4,647 61.7% 5,709 9,330 63.4%

    During the quarter ICICI Bank's cost to income ratio increased to 59% from 50% in previous quarter and 55% in the 2QFY01. The bank's initiatives in setting up infrastructure (ATMs and automation of BoM's branches) contributed to this rise. The bank had a network of 396 branches and 601 ATMs as on September 30, 2001. Its ATM network is one of the largest in India. The bank has also started utilizing this network for advertising its own and third party products. This would help it in generating additional fee based income in the coming years.

    At the current market price of Rs 106, ICICI Bank is trading at a P/E multiple of 9x and Price/Book value ratio of 1.6x, 1HFY02 annualised earnings. The bank's capital adequacy ratio at 13% is much above the minimum required (10%) by the RBI. Its net NPA to advances ratio at 1.4% is also one of the best in the industry.

    ICICI, its parent has decided to merge with the bank is the ratio of 2 shares of ICICI with every 1 share of the bank. The swap ratio is in favour of the bank. However, the bank's financials are likely to get impacted with this merger, as the parent has comparatively high NPA ratio with more risky assets. This would affect the combined entity's quality of assets.

    ICICI group is holding its analyst meet today. We will post a detailed update on the merger tomorrow, when the information on the group's latest initiatives and future strategy is available.

     

     

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