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ICICI Bank: Topline dips QoQ

Oct 31, 2002

ICICI Bank has posted a 5% decline in income from operations on a sequential (QoQ) basis (a year on year comparison is not possible since the bank has now been merged with parent ICICI). An income of Rs 11.9 bn due to sale of stake and a tax write back of Rs 4.7 bn helped ICICI Bank post a 13% sequential growth in net profits. The topline numbers looks disappointing when compared with those of SBI. The banking monolith posted a sequential rise of 4% in revenues. While SBI reported a sequential growth of 2.5% in revenues from advances and 2.8% growth in interest on investments, ICICI’s revenues from advances were flat and income from investments declined sequentially.

(Rs m)1QFY032QFY03Change
Income from operations 23,956 22,798 -4.8%
Other Income 4,375 5,531 26.4%
Interest expense 20,595 19,727 -4.2%
Net interest income 3,361 3,071 -8.6%
Other expenses 4,426 4,817 8.8%
Operating Profit (1,065) (1,747)-
Operating Profit Margin (%)-4.4%-7.7% 
Provisions and contingencies495 17,558 3449.9%
Profit before Tax 2,816 (13,774)-589.2%
Extra-ordinary income/(expense) - 11,910  
Tax287 (4,717)-1745.7%
Profit after Tax/(Loss) 2,529 2,853 12.8%
Net profit margin (%)10.6%12.5% 
No. of Shares (m) 612.6 612.6  
Diluted Earnings per share*16.518.6 
P/E Ratio 7.4 
*(annualised)   

On the brighter side, the universal bank put income from sale of stake to good use. It utilized almost all of the income to provide for NPA’s (non-performing assets). The net NPA’s were 4.9% of the net customer assets. The cost to income ratio also declined from 57% in 1QFY03 to 56% in 2FY03. The improvement was not due to a decline in expenses but a steep growth in other income. This mainly came from a steep 58% sequential growth in treasury income. The fee-based income also grew 7% and accounted for 39% of the other income.

Topline disappoints
(Rs m)1QFY032QFY03Change
Interest on advances 14,681 14,698 0.1%
Income on investments 8,052 7,412 -8.0%
Interest on balance with RBI 1,138 465 -59.1%
Others 85 223 161.7%
Total 23,956 22,798 -4.8%

The bank continued to repay high cost liabilities of ICICI, Rs 46 bn worth of liabilities were paid off during the quarter taking the total amount paid back during the first half to Rs 110 bn. Consequently, the cost of funds declined from 9.2% in 1QFY03 to 9% in 2QFY03. The bank aggressively mobilized deposits, which grew by 8% sequentially. Another positive was the change in mix of the deposit portfolio. The strongest growth came from current account deposits during the quarter as a result of the mix tilted in favour of current accounts. The growth in term deposits was 4%. The change of mix in favour of current accounts helped the bank to lower its cost of deposits from 7.4% in 1QFY03 to 7% in 2QFY03.

(Rs bn)1QFY032QFY03Change
Savings 27 8.1% 30 8.4%11.2%
Current 24 7.2% 34 9.6%43.6%
Term 282 84.7% 295 82.0%4.4%
Total Deposits 333 100.0% 359 100.0%7.8%

Advances saw a strong 4% growth sequentially. Of this the retail segment grew by a steep 43% and there was a decline of 5% in advances to corporates. The decline in corporate assets is part of the Bank’s strategy of churning its portfolio in favour of retail assets. The spreads are much higher on retails loans like auto loans and personal loans. On the other had with lower credit off-take and surplus liquidity in the markets, banks are increasingly finding it difficult to increase advances to the corporates segment. On the back of swift growth, the share of retail segment in total advances jumped from 18% in 1QFY03 to 25% in 2QFY03. However, the bank saw a decline of 2 basis points in yields on interest earnings assets. The figure declined from 10.4% to 10.2% on the back of falling SLR yields.

Among the retail loan segments, home loans exhibited strong growth. The home loans disbursements for the quarter was about Rs 24 bn, which was almost half of the total disbursements. The total growth in retail assets (including ICIC Home Finance Company) was 35%.

At the current market price of Rs 137, the stock is trading at a P/E multiple of 8x its 1HFY02 annualised earnings. At a book value of Rs 111, the price to book value (PBV) works out to be Rs 1.2x. As the restructuring continues, the banks balance sheet begins to look better and better. Although one of the most pressing concerns, NPA, has been addressed, a lot more still needs to be done on this front. On the other hand, it has been very aggressive in lowering the cost of deposits and capturing the share of the retail markets. The results of this will take some time to reflect on the company’s financials.

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