Bank Results Season (India Earnings) : Earnings surprise: ICICI Bank processes a few more growth triggers for Q2 2013

icici bank
icici bank (Photo credit: Wikipedia)

Net Profits have grown to a never before INR 19.60 B or $376.92M for the bank as Net Interest Income climbed to INR 33.71 B or $648.27 M with Treasury income of INR 1.72B helped other income to INR17.91 B  all growing at more than 30% over the year ago quarter. Q1 2013 growth was a little subdued in the middle of the near contraction in the Indian Economy on year but still a sequential improvement on March quarter to INR18.15B. The current Q2 2013 is therefore a sequential gain of 7.33% and even with a near 20% rate of growth in credit CAR including Tier II has inched up to less than 19% Deccan Chronicle ‘s INR 5B exposure was added to bad debt taking Net NPas up sharply to 0.78% from 0.71% in Q2

The bank is looking at bringing $1B in NII itself every quarter in less than 2 years and with Fee Income of INR 179 B year to date is likely going to manage a superior profitability with good NIMs on a loan book closing on to INR 3 Tln

The bank added a INR 5 B media industry account as NPA and i s otherwise unperturbed by the current sector massacre from bad loan provisioning PNB also proved results today and was able to grow credit and deposits by more than 17% on year Though public sector PNB has lost grip on profits, its cost of deposits at less than 7% might be a hearty target for a bank such as ICICI Bank not shy of wholesale deposits.

ICICI Bank has met competitive pressures from Private banks to grow its Deposits to INR 2.9 Tln which means total assets are over INR 3.3 Tln earning NIMs of 3% Savings rewards and social banking go a long way in improving its brand with retail depositors. Savings deposits have grown to INR 810B and 70% of that is retail (Chanda Kochar answers in analyst meet) Advances are INR 2.75 Tln, credit growing at 18%, retail at 14% (mortgages 14% and Cars 27%) with International starting regrowing credit portfolio at 6%

Kotak Bank in the meantime has grown CASA to a respectable 27% and YES Bank also ~20% with a 6/7% interest rate peg for retail depositors. NIMs are smaller at the smaller banks like Kotak and YES

 

 

The 2:30 PM pre closing update August 06-10, 2012 – Jet Airways, Euro, Pound, Reliance and Healthcare

 

 

Monday pre closing looks dyed steeply in the after effects of a turnaround in Dollar fortunes from tokyo close to London open and the equities are just about holding their opening tricks. The Rupee will likely fall through to 56 all over again, but the Pound Sterling may have better luck in keeping Britain competitive as its data is weaker and the strength in the Euro has been cut short so look for the Pound to let the Dollar a good lead and indian stocks to continue rerating on results. Wockhardt and Divis Labs were eyeopeners , likely moving the move from CIPLA and DR Reddy and SAIL(EBITDA of 13%)  and Britannia not so good. Reliance is hoping for better GRMs in Q2

KOTAK and HDFCBANK brought up the cream of the post morning rise in a surprise move in the last few minutes, HDFCBANK hitting 600.

English: JAI210 arrives SFO Jet Airways – Boei...
English: JAI210 arrives SFO Jet Airways – Boeing 777-300 ER (Photo credit: Wikipedia)

PE transactions have increased volume of resales as these secondary transactions could create additional liquidity of upto $100 B in the Indian deal market allowing PE firms to update valuations based on market price and look for a better profit than ina long drawn out listing Airports and Aviation scrips are getting rerated again, at least I think both should even as BAML tries to jump Jet Airways and Spicejet on the Sales and Lease Back profits. Jet profits of INR113 mln include INR500 mln in sale and lease back and apparently some defered tax credits. Jet Airways revenues are up only 5% in Dollar terms to $847 M (INR471.2B) but have a clear line to add to International Star Alliance for code share push to profits and has a seat factor of 82.7% in Q1  FX losses of $31mln could not erase Net profits either.  ATF prices actually rose 13% over Q1 FY12 International operations have made a minor pretax loss of 2-300 mln

Annual revenue of the quarter is up 31% still under $1 B ( lower by $52 mln) but EBITDA MArgin has doubled to 16% on Konnect rollout and ATF decreases will roll further in Q2 . Jet lite yields are up 43% on the year ago Q1. Passenger growth of 10% domestic Y/Y ith 4.86 mln revenue passengers flying an average of 1749 Revenue kilometers

Ofcourse some bank results did spoil the day in Andhra and dhanalakshmi but nothing out of the ordinary and ING, indusind and Kotak look well slotted for the froth of this run, if there is any while YESBANK and ICICIBANK lead wwith HDFCBANK consolidating another big move

Resturctured Assets bought into equity by majority foreign owned banks like ICICI BANK and HDFC BANK will not count to FDI and will be allowed while new subsidiary stakes (strategic investments ) willnot be allowed beyond the FDI cap in the secotr as Indirect FDI

100% FDI is allowed in Commodity Broking however. In new regulations, Insurance Cos have been allowed to purchase and sell CDS contracts as part of hedging portfolios

 

 

 

 

Bank Results Season: Kotak does operate in a saturated market segment of its own

Kotak again proved with today’s results that its ins on not bothering to reinvent themselves have been playing to the old Goldman Sachs gallery and not really going anywhere on the business learning curve. Couple that with another likely two year holiday till it starts to wind down promoter stakes and it is ripe for an Ingovern/Veritas hit which its strong fundamentals can resist easily. Private Equity must be thinking of the prospects of buying this 50% promoter stake daily but seem to have no partnership basis with Uday Kotak

A true smaller range was never ever found again!

Net Interest Income is reaching a degree of scale at INR 7.20 B and the Net NPAs are as suspected rising as it akes out of its existing customer set and splashes a little likely to recede again. One wonders if someone can really revamp that governing structure in place, each manager at his island of incompetence with the HCL GPS device in hand

NIMs are its strength at 4.7% Gross Lending income (only Interest) is up to INR 24.7 B (DJ wires)

Back to the banks then, Kotak having totted up Gross NPAs to 1.4% and NIMs saddening to 4.7% now at 33% higher than the Industry highs of 3.5% among Private and Public sector banks. Anyone who can get a more than 20% credit growth in their conservative forward statements is a shoo in into any decently managed portfolio as the midday correction on sales growth to INR7.2 B definitely brings in Kotak to a short list. Net Profits of the group were INR 2824 M and I would like them to scale a mark of a 1 B in  profits every quarter so the growth in advances and the 7% campaign’s impact on CASA are welcome. CASA is now 22% Advances and Depsits grew more than 30%

Happy Thursdays! Inflation pulls ways and means advances

As Yes Bank signs on to a 600 bps savings bank deposit rate, and food inflation ticks down from 15 to 11%, the refusal of yields to predicate a proposition in the double digits forsooths that the RBI will stop around here if and when inflation trends down. It seems to me that more of the banking sectors participation is at work here in controlling the rise in interest rates. Incessant lobbying apart, the rising IIP and refusal of inflation to tick down below September’s 9.7% could very well still mean a systemic redefinition of interest rate basis in India like in So Africa.

Instead of defining new zeros in overnight and short term rates treasury liquidity like in the US and UK, the new BRICS entrant has simply defined a higher systemic basis by accepting highe3-5% inflation than the US and UK and EZ targets of 2% at the maximum

Some results from biggies Kotak and Dr reddy also make this New Year holiday in India a good segueway to great market speak on the festival of lights.

Kotak outscored by 20% for a new run rate of $800 mln for the 12 months while Dr Reddy returned to its earlier $2 bln run rate with 9.6 bln and 22.5 bln in revenues respectively. Kotak will be with the biggies in keeping SB interest rates down but market sees a lot of benefit for them in the new regime as PSUs are outpriced for the time being and tackle quality issues

Inflation in vegetables remains at 25% but we are in favor of good growth for the hinterland in MSP raises now 2800 for Chana and Masur and increase again in rice and wheat. Also Hamilton must give hope to Ferdnand also to come up in the ranks as the Buddh provides a chance to speed things up on the F1 circuit

Defining the new YES Bank

Finally, the cat is out of the bag. 
Yes Bank albeit a little late or cautious, 
has decided to step into the Institutional market. It will be asking investors to pick up a $250m QIP stake to shore up its capital. In the meantime, as reported earlier, they have also put on hold their diversification and market development plans on the board for the last 2 years now as they get into some serious consolidation in its core banking business. They have a good sleeping brand and their recent cost cutting efforts would also bear fruit. However, their focus on SME business might change now as the current ticket size is very unremunerative for them. There was some recent murmur when Rabobank announced its plans to enter the country directly, but that is a non-starter since Yes Bank would not go for the stake sale by Rabobank without making sure the house is in order as a deeper recession is equally likely in the next 12 months.

Yes would need a little serious selling with big ticket business while continuing to present simple and generous options for retail and SME customers. Their non presence in asset management and broking would hardly raise any eyebrows as the business entirely survives on institutional volumes and even a Kotakstreet and a sharekhan are essentially struggling with their current “low” period.
I wonder how any bank with a brand like Yes can today crack open the expat market which has a few relatively unknown niche players ( Geojit, recently acquired by HSBC) It would need key leadership experience to realise a valid entry point. One option however, at the barest minimum requirement, is to go for a PSB or a local bank in UK and Australia or the Middle east. That requires capital but any other option leaves you with a performance like ICICI Bank which has managed only rep offices in all its overseas expansion and have not been able to generate the required trust without a retail presence on the ground, leaving the field seemingly open for players like ING and HSBC.
Regulatory level liaison with developed markets would sadly continue to maintain the respectable disconnect that exists as emerging markets can barely acknowledge their requirements of the day as they are seemingly extended to the rest of the world. It remains to be seen if that home brewn recipee of the Basel and BoE would ever land in some drifting current and be taken care of. A way must be found for India to spare the cash and show their value in the developed world and invest in these international markets before much more will come out to bear on market shares of all the players. This is not to belittle current efforts from either side but I didn’t see it on the agenda in these last few years at work. It is never too late to start?
The scrip remains a good buy in Indian exchanges and I look forward to even more QIP issuance from YES Bank.

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Rejuvenating Banking after the crash of ’08

I wonder how any bank with a brand like Yes or Kotak can today crack open the expat market which has a few relatively unknown niche players ( Geojit, recently acquired by HSBC) It would need key leadership experience to realise a valid entry point. One option however, at the barest minimum requirement, is to go for a PSB or a local bank in UK and Australia or the Middle east. That requires capital but any other option leaves you with a performance like ICICI Bank which has managed only rep offices in all its overseas expansion and have not been able to generate the required trust without a retail presence on the ground, leaving the field seemingly open for players like ING and HSBC. They do have some presence now in London.
 
Regulatory level liaison with developed markets would sadly continue to maintain the respectable disconnect that exists as emerging markets can barely acknowledge their requirements of the day as they are seamlessly extended to the rest of the world. It remains to be seen if that home brewn recipe of the Basel and BoE would ever land in some drifting current and be taken care of. A way must be found for India to spare the cash and show their value in the developed world and invest in these international markets before much more will come out to bear on market shares of all the players. This is not to belittle current efforts from either side but I didn’t see it on the agenda in these last few years at work. It is never too late to start?
 
All the PSB scrips remains a good buy in Indian exchanges and I look forward to even more QIP issuance from YES Bank. But sooner than later the investing denizens will realize our SME status in the global market and unlike China, here Private Enterprise is free to make its own market rules, which is not something we have made good use of till now.
 
The other priority and now a key priority is of course our spreading into the hinterland as we strengthen distribution and support the microcredit revolution and the farmers. This spread would require immediate action by the banks as the government has al but given the keys to the treasury for the banks to lend and spend and while Corporate credit may be lukewarm, the hinterland beckons.
 
Last but not the least, the banks are key to the Indian consumer treasure now that it is all about lifestyle and disposable spending. While unsecured credit would not be remunerative, as we cannot go beyond the current systemized and sometimes too painfully detailed back office ops required to support the credit.
 
As a banker I probably wonder why the boom did not last, but then nothing lasts forever and as far as emerging markets are concerned , it remains a s good as it gets as Class B towns and Metros keep growing incessantly and people continue to spend on retail, lifestyle and entertainment. Infrastructure financing will attract the big bucks and the retail lifestyle spending will grow as fast as ever within the next 12 months, the magic being in access and prompt delivery by the banks.
 
Predictions: Interest rates are headed lower and Treasuries are going to be fatter and richer but still incomparable to the riches in the global markets
 
[Category India]
[Tags India infrastructure, Banking, Bank stocks, Wealth, Retail Lifestyle, Amitonomics, Lifestyle Economy, India, Economy, Finance]
 
Amit Mittal
mittalster@gmail.com
 
Amit Mittal
Mob: 919972442877
amit.mittal@me.com
MD, Advantage Research Pvt Ltd
@Innovative Film City, Bidadi 562109
On the web Advantage ‘zyaada’ http://advantages.us/zya
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