ICICI Bank: Beyond expectations

ICICI Bank's deposits went up 47 per cent y-o-y in Q3 FY07

For the December 2006 quarter, ICICI Bank had yet another superlative quarter with a strong 32 per cent y-o-y growth in net interest income and 53 per cent rise in fee income.

Both the core operating profit and the net profit grew ahead of analysts' expectations at 57 per cent and 42 per cent over Q3 FY05.

ICICI Bank increased its total assets by 39 per cent. Among the first to raise deposit rates, the bank's deposits went up 47 per cent y-o-y in Q3 FY07, while many other private and public sector banks have been struggling to increase deposits to keep up with the blistering 30 per cent loan growth.

Also, the high growth of loans has not affected ICICI Bank's net interest margin as the bank passed on higher costs to borrowers and reduced its cost of funds, which was up 10 basis points y-o-y as well as sequentially.

Also, it was helped by 53 per cent rise in savings deposits, which have lower costs. Overall, low cost deposits are up 500 basis points y-o-y to 28 per cent of total deposits.

Loans grew 41 per cent y-o-y to Rs 1.73 lakh crore, with significant growth coming from the retail segment, which grew 50 per cent y-o-y after the 57 per cent growth in the September quarter.

Retail assets stood at Rs 1.18 lakh crore, and account for 68 per cent of advances and 65 per cent of customer assets. The loan portfolio in its international operations, which is a focus area for the bank, also went up 73 per cent, albeit on a low base, to Rs 20,829 crore, as it was able to leverage its Indian client base.

Its other income grew 60 per cent as the bank is capitalising on expansions of Indian companies in India and abroad to increase non-fund based income, and this focus will continue. After treasury gains, operating profit was up 65 per cent.

With more branches coming this year, it will have a wider access to low cost deposits. The ICICI Bank stock has appreciated 14.4 per cent in the past month, against the Sensex gaining 6 per cent. Though the bank trades at an expensive 3.3 times FY08 book value, it remains the top picks in the sector.

Maruti: Smooth ride

Maruti has done well to post an operating profit margin of 14.5 per cent for the December quarter given that it has incurred higher costs on several fronts.

While the margin has dipped by about 50 basis points compared with Q3 FY06, it is nonetheless commendable because the company has had to pay royalties for the Zen Estillo and also incur some advertising and promotional expenses. Net sales for the December quarter were up 18 per cent y-o-y on higher volumes of nearly 19 per cent, driven by festival season sales.

In the September quarter, the volume growth had been around 16 per cent y-o-y. The gross realisations in the December quarter have been somewhat impacted because of the higher contribution to total sales of the key compact segment A2.

Volumes in this segment were very strong at 36 per cent y-o-y with the Alto continuing to replace the Maruti 800 in the A1 segment. Volumes for the high-end Baleno and Esteem, on the other hand were weak.

The impact of discounts given on the Maruti 800 has also been felt on the numbers. After adjusting for the merger of MSAIL, which incurred a loss of Rs 54 crore, the profit before tax has increased to RS 599 crore, an increase of 19 per cent.

The Indian car market continues to be on a structural growth path with a 10-12 per cent annual growth over the medium term and Maruti should see sales momentum especially with the launch of the diesel version of Swift.

Also over a period of time, it should emerge as Suzuki's regional hub, thereby reducing its dependence on the local market. At the current price of Rs 938, the stock trades at just under 16 times estimated FY08 earnings.

While Maruti has managed to retain a dominant share of the Indian car market despite the presence of several foreign players, competition in the industry is only increasing and new entrants could eat into the company's share.

The stock is not expensive but much of the near-term upsides appear to have been factored into the price.