| ICICI Results - Sorry, no magic |
If you recalled that famous ICICI's byline "adding a little magic to everyone's life", you would be sorely disappointed to know that the financial behemoth's scorecard is bereft of any magical magnificence. The results disappoint at first sight, sample this - Q4 FY01 loss stands at a whopping Rs 257 crore as against the profit of Rs. 395 crore in the corresponding quarter of last fiscal, while the full year profits are more than halved at Rs 537 crore in comparison to a profit of Rs 1,206 crore, recorded in the previous year. That's no reason to believe that the company which aspires to become India's financial super-market has added any magic to the investor's life. However, a clean-balance-sheet act by the company does provide some succour to curious minds. If you like to know why the company's performance lacks any magical splendor this time, read on.
ICICI juggernaut hit a speed breaker in FY01 as an act of over-acceleration made it a bit difficult to drive in complete control. Bottomlines became a victim of this acceleration in the final stage (quarter) and hence the full fiscal. This resulted on account of the company's decision to make accelerated provisions against NPLs (Non Performing Loans - Any loan repayment which is delayed beyond 180 days), considered to be a more conservative policy. The idea being that such a conservative provisioning policy would help the company achieve a 50% provision cover against a NPL in an "accelerated" time-frame of three years, well ahead of a time-frame of five-and-a-half-year, prescribed under the current guidelines by RBI. The move, by the company, seems to be an attempt to catch up with the trend prevalent amongst global banks and financial institutions in emerging markets towards increasing their provision cover against NPLs. It would be mentioned here that globally, the valuations of these entities get driven by the level of NPLs on their books, to a considerable extent. Hence, ICICI's move could be seen in the light of this fact as well. Furthermore, in the backdrop of a gloomy economic outlook for the global economy as a whole, the strategy of higher provision could provide additional cushion to the company from the rising impact of volatility in such economies on emerging markets like India.
A look at the company's annual scorecard suggests that it has made aggregate provisions and write-offs of Rs 1,421 crore for the full fiscal year 2000-2001. This is broken into two components - Rs. 608 crore is provided as per the requirements of the RBI guidelines whereas Rs 813 crore is on account of the accelerated provisions and write-offs. Further, the accelerated provision amount of Rs 813 crore includes, around Rs 300 crore towards provisioning for sub-standard assets (assets which are non-performing for a period not exceeding two years) and the rest towards write-offs against bad loans (loans which have remained non-performing for a period exceeding two years). Another provisioning of Rs 145 crore has been made in accordance to the new valuation norms on investments stipulated by RBI in the last fiscal. Of the total NPAs, textile sector accounted for 17.1 percent, man-made fibres 11.4 percent and iron and steel 9.2 percent, as on March 31, 2001. As a result of the accelerated efforts, the net NPA ratio has declined to 5.2 percent as on March 31, 2001 from 7.6 percent a year ago. Together with a rise in provisioning, a sharp decline of 63% in dividend income to Rs. 40 crore (109 crore in FY00) caused a loss in the last quarter, while for the full fiscal, a fall of 48.6 percent in dividend income to the tune of Rs 108 crore (Rs 210 crore), resulted in a profit decline of over 55%. However, as a result of the accelerated provisions and write-offs of Rs 813 crore against NPLs, the net NPL ratio has declined to 5.2% in FY01 from 7.6% in the last fiscal, a healthy sign for the financial giant.
ICICI's continued efforts to improve the risk profile of its asset portfolio, by focusing on business with better-rated corporates, structured infrastructure finance and retail business, could payoff well in future. The company's disbursements to companies rated 'A' and above increased to 89% of total disbursements in FY2001 from 82% in FY2000 as well as approvals to companies rated 'A' and above increased to 92% from 89%, during the same period. The company's plan to consolidate its various subsidiaries, which are operating in similar areas, is a step in right direction. At present, there are about 30 companies which are either ICICI's subsidiaries or cross-owned by its subsidiaries. For example, the issued and paid-up capital of ICICI Real Estate is two shares of Rs 10 each, one held by ICICI Ltd and another by one of its subsidiary. ICICI Properties has an issued and paid-up capital of 200 shares of Rs 10 each, 100 held by ICICI and 100 by subsidiaries. Those having operational synergies, if merged, could yield better results. Group companies which operate in similar areas like ICICI Capital Ltd, ICICI Personal Finance Services, ICICI Webtrade - financial services - and, ICICI Properties Ltd, ICICI Realty Ltd and ICICI Real Estate Company Ltd - real estates - are likely entities for consolidation.
The market, despite a disappointing performance, has given a thumbs up to the acceleration drive undertaken by the company, on reducing bad debts on its books. This was reflected on the day of announcements of the results when stock prices kept rolling on unperturbed. However, there is little doubt that to add a little magic to investor's life and most importantly to her wealth portfolio, the financial behemoth needs to keep some more tricks up its sleeve.
Amit Singh
Feedback Rate this article