ICICI: Primed for growth

Rural and international markets could well emerge as the new growth engines.

Growing its loan book at a blistering 46 per cent a year in the last three years, ICICI Bank has built up a strong lending franchise, especially in the retail space. With the economy expected to grow at around 8-9 per cent over the next few years, there is little reason to believe that credit demand would taper off significantly.

Against this backdrop, it makes sense for the bank to mop up Rs 20,000 crore. A back-of-the-envelope calculation reveals that after meeting the new capital adequacy norms, the bank will have enough to grow its book by about 30 per cent for three years.

True, retail credit growth could slow down to around 25-26 per cent annually over the next few years. So if ICICI has to grow its assets at about 30 per cent, it needs to grow the corporate book at around 33 per cent. That should not be too difficult"" demand from companies, many of which are in investment mode, should remain robust.

Besides, the bank is looking increasingly at the rural market for growth and this space together with the international market - which now accounts for a fifth of its total business - could well emerge as the new growth engines.

The overseas business may not be as profitable as the domestic asset book net interest margins for the bank, as a whole, was 2.55 per cent in FY07 but there is an opportunity to make money from fees.

ICICI Bank's trump card is its insurance business "" it has been the market leader in the private sector for six years now. And the bank's holding company, which houses the insurance and asset management ventures, has been recently valued at $11 billion (Rs 45,000 crore).

The current issue will mean an equity dilution of 25 per cent, though earnings should fall by just about 10-15 per cent as the funds will bring in additional profits. The returns, on a post-tax basis, should be at least 8-9 per cent. From 13.2 per cent in FY07, the return on equity, however, will dip sharply in two years.

Discounting the FY09 estimated book value by a multiple of 2, results in a core banking value per share of Rs 800. While the per value share of the subsidiaries works out to around Rs 275, the resultant fair value for the stock is Rs 1075. For retail investors, even at Rs 900 (after the Rs 50 discount), this means returns of about 19.5 per cent.

Geodesic: High margins

Software product company Geodesic Information Systems has announced impressive results for FY07. Its consolidated revenues grew 73.7 per cent to Rs 168 crore and operating profits were up 96 per cent to Rs 104 crore.

The company has enjoyed high operating margins of over 40 per cent in the past, and this year owing to a change in accounting, the margin improved by 717 basis points to 62.2 per cent.

According to the management, the normalised margin would be around 45 per cent to 47 per cent, which still remains impressive. For Q4 FY07, the revenue growth was subdued at 8.3 per cent over the December 2006 quarter to 69.1 percent.

The company's main products are instant messaging products, which work with all the major messengers, under the Mundu brand for computers and mobiles.

For enterprises, Geodesic charges licensing fee, customisation costs and usage fees, and besides instant messaging, it also helps in improving productivity. Its messenger for the mobile is sold for $11 in the retail market, and can connect to all the major messenger services.  It launched a mobile internet radio product in FY07, which is free at the moment. During the year, Geodesic signed up with BenQ to bundle Mundu on the latter's smartphones, and gained clients in the European publishing industry.  Going forward, the company will be investing in marketing its products to the retail market and increase enterprise sales. Its earlier acquisition of PicoPeta, the company that develops the low-priced handheld computer Simputer, has not become popular so far.  However, last year it saw some sales from the police departments and is also going to be used in the national identification project. The Geodesic stock has done well, appreciating over 60 per cent in the past year. The stock, which went up 10 per cent on Monday after its results. trades at 17 times fully diluted FY07 earnings, and should do well.