ICICI Bank: Aggressive growth

A 34 per cent rise in income has pushed up pre-provisioning profit by 38 per cent.

With a sequential improvement in the net interest margin of 28 basis points to 2.1 per cent, ICICI Bank's numbers for the September quarter have been reasonably good.

Even if one were to exclude the beneficial impact of the capital raised, the margins have seen a slight increase of 5 basis points.

The better margins are the result of a strong rise in the net interest income to Rs 1896 crore, an increase of 34 per cent y-o-y.

The equally strong performance - a 34 per cent rise y-o-y - in the non-interest income, coupled with lower rise in costs of 28 per cent y-o-y, has helped push up the pre-provisioning profit to Rs 1,887 crore, an increase of 38 per cent.

This is the third consecutive quarter in which loan growth has moderated, but it is still a decent 33 per cent, despite the far lower growth in retail assets of 22 per cent y-o-y thanks to the growth in the international portfolio of 146 per cent y-o-y.

The retail portfolio is gradually decreasing, especially with the home loan portfolio de-growing by 24 per cent y-o-y though it still constitutes 63 per cent of advances.

On the other hand, the international portfolio today accounts for 18 per cent of the total advances compared with just 9 per cent last year. The retail portfolio should gradually become smaller as the international and rural businesses grow.

Gross NPLs at 2.8 per cent and net NPLs at 1.2 per cent (post the sale of Rs 360 crore distressed assets to Arcil) are not unduly high given that the bank is pursuing an aggressive growth strategy. The increase in provisioning at 38 per cent y-o-y is actually far lower than that in the June quarter.

On the liabilities side, the bank has seen a sharp slowdown in the growth of deposits in the September quarter to 20 per cent y-o-y compared with 50-55 per cent during FY07.

The good news is that the proportion of CASA is higher by 300 basis points to 25 per cent and the bank has been able to retire a portion of the high costs bulk deposits. Thus, the cost of funds has come down.

At the current price of Rs 1062, the stock trades at 2.2 times estimated FY09 book value. It is far cheaper than HDFC Bank which trades at over 4 times FY09 estimated book.

GE Shipping: Operating pressure

GE Shipping attempted to offset weak spot average freight rates in the key tanker segment in the September 2007 quarter via long-term contracts with its clients.

In addition, the company has been able to transport enhanced volumes of freight on a y-o-y basis, but higher operating costs put pressure on its margins.

As a result, its core operating profit (excluding foreign exchange gains, interest income and sale of ships) grew 4.6 per cent y-o-y to Rs 277.9 crore in Q2 FY08, while its freight and charter hire income grew 15.2 per cent to Rs 601.3 crore.

Its operating profit margin declined 465 basis points y-o-y to 46.2 per cent in Q2. In the June 2007 quarter too, its operating profit margin declined 460 basis points y-o-y to 49.1 per cent.

Spot average freight rates in tanker segment like VLCC was $15,226 per day in the September 2007 quarter as compared with $57,332 per day a year earlier, point out analysts.

To offset weak spot tanker segment freight rates, GE Shipping has once again expanded its freight volumes transported in the booming dry bulk segment, given strong demand conditions especially from the Chinese metal industry.

As a result, the freight transported on its own vessels was 3.24 million dwt (deadweight tonne) in Q2 FY08 compared with 2.77 million dwt in the previous year.

In addition, the company used in-chartered vessels (ships owned by third companies) in the Q2 to leverage strong demand conditions, but that resulted in the cost of hire of chartered ships rising 41.5 per cent y-o-y to Rs 66.8 crore.

The company has also highlighted that it incurred a higher expense on account of dry docking of vessels amounting to Rs 42 crore in Q2 as compared to Rs 12 crore a year ago.

Going forward, spot freight rates in the key tanker segment continue to be weak on a y-o-y basis and its long term contracts with clients will remain crucial.

However, the company is ramping up its fleet capacity, which should help keep its operational costs under check over the next few quarters. The stock trades at about 6.5 times estimated FY08 earnings, which is reasonable.

With contributions from Shobhana Subramanian and Amriteshwar Mathur