ICICI Bank: Getting it right

ICICI Bank has found the formula to keep its bottomline growing despite treasury income loss

The striking feature of ICICI Bank's results for the fourth quarter (Q4) of FY04 is the fall in net non-performing assets (NPAs) from 4.7 per cent of net customer assets as on December 31, 2003 to 2.87 per cent of net customer assets three months later.

The main reason has been a sharp reduction in gross NPAs, rather than higher provisioning. In fact, provisions during the fourth quarter have been lower than during the immediately preceding quarter. The transfer of impaired loans to an asset reconstruction company has certainly helped a lot in bringing down the gross NPAs.

The bank has also been able to bring down its restructured assets from Rs 7,410 crore as at end-December to Rs 6,629 crore.

Earlier, restructured assets had declined by Rs 3,081 crore between June and December. Profit after tax, at Rs 455 crore for the quarter, was higher than the Rs 440 crore notched up during the immediately preceding quarter, but operating profits for Q4, at Rs 583 crore, was substantially lower than third quarter's (Q3) Rs 652 crore.

That's because of lower other income on the one hand, a consequence of lower treasury profits, and higher expenses on the other.

Net interest income was higher at Rs 528 crore in Q4 compared with Rs 485 crore in Q3. So was fee income. However, lower treasury income in the fourth quarter (Rs 212 crore compared with Rs 381 crore in Q3) led to a lower operating income compared with the operating income in Q3.

Clearly, the bank hasn't been able to make up all its loss of treasury income, although some of it has been offset. That is a challenge faced by all banks in India at the moment, but it's a challenge that will grow less formidable as corporate investment picks up.

The bank's expenses too went up in Q4, with operating expenses rising to Rs 690 crore from Rs 645 crore in the preceding quarter. The cost-to-income ratio worsened during the quarter.

As a matter of fact, it was only much reduced provisions and contingencies that enabled the bank to show a higher net profit than in Q3.

Nevertheless, now that NPA levels are much lower, and since the sale of impaired assets to reconstruction companies will continue, the need for higher provisions is now less.

It needs to be mentioned that operating profit in Q3 was, in turn, lower than Q2's Rs 671 crore. But in Q3 too, lower provisions led to a higher net profit.

ICICI Bank has finally found the formula to keep its bottomline growing despite the loss of treasury income. And the money from its public issue will enable it to aggressively grow its balance sheet.

Siemens India

The cyclical upturn in the economy has resulted in an improved performance of Siemens Ltd in its second quarter (Q2) ended March '04 - the company's operating profit grew 58 per cent to Rs 51.62 crore on the back of a 22 per cent rise in net sales. But a loss of Rs 10.6 crore on foreign exchange and a tax provision of Rs 12.6 crore pertaining to earlier years led to a net profit growth of only 17 per cent.

The results were taken well by the markets-the Siemens scrip is still steady at Rs 1,050 levels despite the fall in the markets.

With private players aggressively expanding their electricity transmission and distribution network after the passage of the Electricity Bill, Siemen's key power division witnessed an all round improvement in its performance.

This segment's operating profit jumped 32 per cent to Rs 10.33 crore in the March quarter, and operating profit margin jumped 100 basis points to 9 per cent.

Also, a revival in India Inc's IT budgets coupled with an increase in outsourcing work for the global operations of the MNC helped Siemen's information and communication division's profit jump 15 per cent to Rs 3.29 crore. Operating profit margins of this division were steady at 15 per cent.

Analysts expect earnings at Siemens to gain momentum this year on the back of an improved order book "" it has recently bagged large contracts from the Indian Railways, including a Rs 230 crore order from the diesel locomotive works, Varanasi and a Rs 483 crore order from Mumbai's suburban network. The company will execute the Varanasi and Mumbai projects over three years.

Further, Siemens India's overseas operations are also set to get a fresh impetus, as three of the company's seven manufacturing units have been recently certified as centre of competence (global sourcing hub) by the parent.

And coupled with the Indian arm paying close attention on reducing its supply chain costs, it would help ensure that it is globally competitive and can have a greater role to play in the global value chain.

With contributions from Amriteshwar Mathur