Strike dent

BS Compass

The highlight of Maruti's September quarter results was the strike at DCM Engineering, the company that supplies 70 per cent of its cylinder blocks.

The disruption in production led to led to a massive fall in growth rates in the months of August and September.

Compared with a volume growth of 47.4 per cent in the June quarter, growth in the September quarter was just 18.4 per cent.

Exports, which grew at a scorching pace (254 per cent) in the June quarter, rose just 27 per cent last quarter.

The company hasn't provided results for the corresponding quarter of the previous year (actually, it didn't have to because it was listed only in July this year), so one needs to do a sequential analysis.

Interestingly, despite the strike, which led to lower capacity utilisation, and higher steel prices, Maruti managed a 60 basis points improvement in operating margin compared with the June quarter.

All of the gains came from savings in raw material costs, which implies that the company hasn't yet been affected by the rise in steel prices.

Analysts point out that this may, however, be reflected going forward as vendors would eventually have to be given a price hike.

Another noticeable fact was that other income accounted for 65 per cent of the company's PBT, up from 40 per cent in the June quarter.

All told, the results weren't all that impressive, but that was expected since the impact of the strike on sales volumes was already known.

Going forward, the company seems well placed to take advantage of the pick up in demand that generally happens during the festive December quarter.

Maruti's tie-up with SBI and its subsidiaries for car financing is expected to push volume growth going forward.

Besides, the company is expected to reduce costs by 30 per cent by FY05, which will more than offset the anticipated rise in input costs.

ICICI Bank

Rising steel prices have left their impact on ICICI Bank's results for the second quarter. Of the bank's Rs 460 crore worth of treasury income, Rs 164 crore was on account of equity sales.

At the same time, repayment of restructured loans led to a decline in net restructured assets by Rs 2,635 crore during the quarter.

The hope for ICICI Bank investors is that the bank's asset quality problems may now be past their peak, a hope that saw the stock rise smartly after the results.

Operating profits, after adjusting for the one-off gain of Rs 1191 crore realised in Q2 last year, were up a staggering 88 per cent, thanks mainly to higher "other income"( mainly treasury profits), and also to a 46 per cent rise in net interest (entirely the consequence of repaying high-cost deposits and lowering average costs).

Retail assets now constitute 39 per cent of customer assets, against 35 per cent in end-June. Net NPAs, however, remain high at 4.8 per cent of customer assets, and the Bank's recent filings with the US Securities and Exchange Commission indicate that besides project finance loans, its working capital portfolio too has been affected, although retail assets remain largely NPA-free.

On the liabilities side, however, a continuous decrease in funding costs has enabled the bank to expand net interest, in spite of a decline in interest earned. Net interest margins have improved to 1.8 per cent in spite of the rate war in the retail sector.

Going forward, robust cash flows of steel companies, the CDR packages, the improvement in the economy, and the retail focus should all help to contain ICICI Bank's asset quality problems.

With contributions from Mobis Philipose