Overseas growth drives ICICI Bank momentum - 23rd October 2007

23rd October 2007

Pallavi Mulay & Ramakrishna Kashelkar

Overseas growth drives ICICI Bank momentum

ICICI BANK’S Q2 FY08 performance is in line with market expectations. Net profit recorded a growth of 33% in September 2007 quarter on account of a similar growth in net interest income. Lower growth in operating expenses and strong revenue generation from international business also helped. However, there are some concerns, which need to be closely watched. Non-performing assets (NPAs) nearly doubled during the quarter to nearly Rs 3,000 crore. It now accounts for 1.4% of net assets as against less than 1% a year ago. Attractive deposit schemes led to 26% growth in overall deposits for the bank at the end of September 2007. But low-cost deposits — current and saving account deposits — accounted for just a quarter of aggregate ones. This has raised the cost of funds. High-yielding retail loans, which constituted two-thirds of the bank’s total assets, faced a slowdown in growth. The lower growth in retail loans has put pressure on bank’s net interest margins (NIM). NIM declined by 10 basis points to 2.13% at the end of September 2007.

Going forward, the bank's performance is expected to improve as it has further reduced its deposit rates by a half a percentage point. It will help the bank curtail its cost of funds. Also, a few retail loan schemes with attractive interest rates were announced on the eve of the festive season, thereby making the bank accelerate its advances. This, coupled with its resilient international business, makes ICICI Bank a good growth story in the forthcoming quarters.
Subsidy cut lifts Gail
GAIL India’s turnover rose in the quarter ended September 2007 due to volume gains and net profit was also boosted by higher operating margin. The quarterly performance was propped up by a strong 38% cut in its subsidy burden, which stood at Rs 260 crore on a provisional basis.

GAIL registered a 22% growth in net sales at Rs 4,529 crore and a 28% growth in PAT at Rs 572.54 crore during the quarter ended September 2007. Profit growth was aided by a sharp reduction in the subsidy burden. This enabled the company to register profits in its LPG business, which had incurred losses in the corresponding quarter last year.

GAIL’s revenue from natural gas transmission grew 14.3% to Rs 568.3 crore, aided by a doubledigit growth in volumes. The natural gas trading business grew 9.8% to Rs 3,209 crore as the volume sold rose by nearly 12% during the period. For GAIL, the best-performing segment of Q2 was probably petrochemicals, which witnessed a 37% growth in turnover at Rs 640.2 crore as polymer sales jumped an equal measure to 96,000 tonnes. As the margins expanded, PBIT from this segment went up by 83.4% to Rs 319.53 crore. However, GAIL had to overcome a few hurdles before reporting this impressive result. The rupee appreciation has cost the company around Rs 131 crore during the said quarter. Its effective tax rate rose to 35.6% during the quarter, up from 23.2% in September 2006 quarter, due to the expiry of income tax holiday of its petrochemicals plant at Pata and LPG plants. The largest gas company in India has recently joined hands with Rashtriya Chemicals & Fertilisers (RCF) to jointly explore surface coal gassification project in Talcher. Similarly, the company is in the process of forming a JV for city gas distribution in Vadodara, where it will hold 25%. However, it’s still early to judge the company on the basis of these proposed diversification. The company’s performance in the near future will continue to depend on its subsidy burden.