ICICI Bank: Nice numbers

ICICI Bank has almost overcome the impact of equity dilution

ICICI Bank continues to rapidly grow its core business. Its operating profit in the third quarter has been higher than that in the second quarter.

Net interest income went up substantially, from Rs 685 crore in Q2 to Rs 733 crore. Fee income too grew substantially. The upshot was that the "core operating revenue" i.e., excluding treasury income, rose to Rs 1,424 crore from Rs 1,397 crore in the second quarter.

However, operating expenses too rose sharply in Q3. As a result, the bank's "Core operating profit" fell to Rs 572 crore from Rs 629 crore in Q2. Treasury income rode to the rescue, lifting total operating profit. Lower provisions and contingencies bolstered the bottom line.

Apart from the rise in expenses, however, the third-quarter results have been excellent. Net non-performing assets (NPAs) have come down from 2.6 per cent of customer assets at the end of September to 2.3 per cent.

Gross NPAs have fallen and net restructured assets have come down too, albeit marginally, from the level as at end-September. Interest expended as a percentage of interest earned improved from 69.28 per cent to 69.17 per cent.

Growth in both deposits and advances continues to be strong, with the former growing by 35 per cent y-o-y, while the latter rose by 32 per cent.

That growth should soon see ICICI Bank overcome the effects of its equity dilution, especially now that it has immunised a part of its portfolio from interest rates risk by transferring securities to the held-to-maturity category.

In Q3, diluted earnings per share rose to Rs 6.99, compared with Rs 5.97 for Q2. It's now only marginally below FY04's Q3 diluted earnings per share of Rs 7.10.

Bharat Forge

Bharat Forge reported a net profit growth of 25.5 per cent last quarter, lower than the 29.1 per cent growth in the first half of the fiscal.

This was despite higher revenue growth, at 46.6 per cent compared to 40.3 per cent in the first six months. Profitability took a bad hit, with the operating margin falling by over 300 basis points.

But despite this, the Bharat Forge stock rallied around five per cent to Rs 1110, which is close to an all-time high. The main reason for this is the 76 per cent jump in exports reported by the company.

Exports growth was much lower at 27 per cent in the first half period, and the higher growth last quarter is being seen as an indication that the ongoing capex program will result in higher growth numbers for the company going forward.

Profitability was expected to take a hit, owing to the escalation in raw material costs "" as a percentage of sales, these jumped by over 600 basis points last quarter. It was only because of a cut in other expenses that the fall in operating margin was restricted to around 300 basis points.

Bharat Forge's foreign subsidiary, CDP Bharat Forge GmbH (CDPBH) has seen a sequential improvement in performance for the second quarter in a row (year ago figures are not available for the subsidiary).

CDPBH's sales grew 14 per cent sequentially last quarter, but more importantly its EBITDA margin jumped to 16.1 per cent, compared to 11.8 per cent in the September quarter.

CDPBH added about 40 per cent to Bharat Forge's stand-alone profit last quarter, and the marked improvement in its performance has been a significant trigger for the stock.

Growth is expected to continue in high double digits, but at 16 times consolidated FY06 estimates the stock isn't cheap.

UTI Bank

UTI Bank's third-quarter results illustrate vividly the benefits of transferring securities to the "Held to Maturity" segment in Q2. While the bank took a hit on its bottomline in Q2 because of the transfer, it has bounced back during Q3.

Nevertheless, operating profit at Rs 179.45 crore remain below Q3, FY04's operating profits of Rs 180.71 crore, indicating that growth in net interest income has been insufficient to compensate for the loss of profit on sale of investments. However, lower provisions and contingencies have buoyed net profit.

Comparing the third quarter with the second, net interest income has gone up from Rs 180.72 crore to Rs 180.72 crore. Trading income was a positive Rs 42.88 crore, compared to a hugely negative Rs 94.85 crore in Q2 (because of the transfer to the HTM category).

Fee income has grown handsomely. Core operating profit (i.e. excluding trading income) have grown from Rs 133.24 crore in Q2 to Rs 138.57 crore in Q3.

Net interest margin fell from 3.12 per cent in Q2 to 2.90 per cent, but the bank says that was because of its strategy to grow advances at a sizzling pace.

Although the bank's net NPA rato has improved to 1.30 per cent, gross as well as net NPAs have increased in absolute terms. What's more, while lower provisions have buoyed profit, provision as a percentage of gross NPAs has actually come down.

UTI Bank's rapid growth has led to the capital adequacy ratio dipping to 9.38 per cent "" hence the need for its GDR issue. The scrip is trading at a high price to adjusted book value of 4, and the dilution could weigh on it, but its status as a takeover candidate will continue to support the stock.

With contribution from Mobis Philipose