ICICI Bank: Northward Ho

Higher yield on investments saved the day for ICICI Bank

Despite the tough interest rate environment, ICICI Bank's net interest margin fell just 15 basis points sequentially to 2.5 per cent. What helped was a higher yield on investments and an exceptional rise in other interest income.

The re-setting of interest rates for home loans, should help take care of the higher average cost of funds, which was up 60 basis points during the June quarter. However, the bank has also incurred higher than expected costs on employees and marketing.

The stock was up 6 per cent on Monday possibly because of the strong increase in the net interest income, up 52 per cent and the fee income which jumped 50 per cent.

Both contributed to the fairly good rise in the pre-provisioning profit to Rs 1,231 crore, an increase of 27 per cent y-o-y. Despite the high base, retail assets grew 59 per cent y-o-y and the bank now has retail portfolio of Rs 98,687 crore.

However, it is likely that the retail loans will henceforth grow at a slower pace than corporate loans. The bank's balance sheet quality appears to be intact: net non-performing assets were sequentially flat at 0.8 per cent of customer assets (0.7 per cent in Q4 FY06).

However, the numbers at the net level were a trifle disappointing given the lower tax outgo: the net profit grew just 17 per cent to Rs 530 crore.

The tax rate of 17 per cent in the quarter does not appear sustainable and was probably due to some capital gains made in the June quarter. The bank has provided a higher amount of Rs 267 crore for amortising premium for the held-to-maturity category of gilts.

At the current price of Rs 515, the stock trades at just under 2 times estimated FY07 price to book value and about 1.7 times estimated FY08 PBV. The estimated sum of parts valuation (with subsidiaries) for FY07 is around Rs 775.

Larsen & Toubro: Up and pronto

After a strong performance in the June quarter, the L&T stock appreciated 2 per cent on Monday. Order bookings were up 90 per cent for the quarter. At the end of June 2006, the company's total order backlog stood at Rs 27,453 crore, up 54 per cent from June 2005.

In Q1 FY07, its operating income went up by about 12 per cent y-o-y to Rs 3,476.9 crore, but its operating profit went up a phenomenal 80 per cent to Rs 236 crore.

As a result, its operating profit for the quarter went up by 257 basis points y-o-y to 6.8 per cent. Even in the March quarter, L&T had improved its margin by over 200 basis points y-o-y.

The increase in operating profit is because many projects crossed the threshold levels and the company started recognising profits in them on milestone basis.

Growth rates in the smaller businesses of electrical and electronics, and the 'others' segment (comprising ready mix concrete, property development, embedded systems and e-engineering services) were higher at 31 per cent and 61.5 per cent, while the larger engineering and construction (E&C) business.

The E&C business accounted for almost 73 per cent of the gross segment revenue. Though cement prices were high in the June quarter, it managed the cost of other raw materials better due to its sourcing initiatives.

The E&C business booked orders of Rs 6,324 crore in the quarter, up 121 per cent y-o-y. Based on the ongoing boom in infrastructure and refining projects in India and the Middle East, the company is expected to continue posting better growth in the next few quarters.

The stock trades at about 19-20 times its FY07 EPS, which is reasonable given the growth opportunities.