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ICICI FY08 EPS growth is 4%, Q4 EPS Contracts

ICICI Bank reveals it’s Q4 results and annual results for FY 08.

What I’m concerned with is the EPS contraction in the fourth quarter. In Q3, I’d noted that EPS growth was only 2%. In Q4, EPS was Rs. 5.68 versus Rs. 6.2 in Q4 FY07. This is an EPS contraction of 52 paise, or nearly 9%.

Note that again, carefully: EPS growth in Q3 was 2%, and in Q4, EPS growth was a NEGATIVE 9%. Slowdown, anyone?

Now for the financial year, diluted EPS was Rs. 32 versus Rs. 30.75 last year. That’s a 4% growth. At current price of Rs. 916, you are paying a P/E of 28 for this company. Now 28 P/E for slowing growth is a tad high, huh?

(Note that the official result statements show some 39% growth in profits. But that is an absolute number – they raised 20,000 cr. last year, which diluted the capital severely. If growth can only come from capital expansions, then we shouldn’t be paying this kind of P/E.)

Having said that – let’s conider the “weighted average EPS”, which has grown to 39.4 from 34.8, which is a 13.2% increase. Again, way lower than P/E. What’s more scary is that EPS growth is really slowing down in a quarterly manner.

Other points:

  • Growth from UK and Canada is huge. Is this subject to a slowdown in those countries? Time will tell.
  • Impressive growth on the Mutual fund and Brokerage subsediaries.
  • Insurance is unimpressive. The numbers don’t seem to provide too much confidence in the businesses. Insurance actually lost a heck of a lot of money (1500 cr.) which may be good to demerge.
  • Coming to demergers, there wasn’t much that was heard of the demerging of the mutual fund, insurance and brokerage subsediaries. Any news?
  • Retail credit growth may be suspect because of the home loan squeeze and generally high asset prices.
  • ICICI Bank has provisioned a further Rs. 400 cr. for this quarter’s mark-to-market losses. In my earlier post we had seen this figure being switched back and forth. But now they are clear – 280 cr. earlier to this quarter, and another 400 cr. now.
  • ICICI refuses to mention what derivative losses it’s clients have. That’s ok, they don’t have to. It’s their clients that lost money.
  • What’s weird is that they mention that they have some customers who have filed legal cases against them. And they have provisioned some money against such cases. They have specifically not mentioned how much the provision was, and the potential impact of these cases. Beware the unsaid words – they will come back and bite.

Disclosure: No positions. Was short, but am out of that position now. I wouldn’t short this stock on Monday – the technicals look very strong. But the fundamentals are weak, and I think now it’s a matter of time before this stock goes down.

Note: This is not a bad company – it’s not going to be bankrupt. It has a lot of assets, and capital to support itself. But it cannot command such valuations with obvious growth pressure. The company is consolidating and the stock needs to do so as well. At the current price, there’s not much more left to go – but take 1/3rd off and maybe there’s a story.

Update 27/4/08: ICICI Bank’s 1 hour conf call provided more details.

  • IPOs not planned until they get a “fair value” for the subsediaries.
  • There was some difference between the way Prudential valued the exposure in insurance to the way ICICI did it. The reason mentioned was that the actuarial fundas were different (we are a growing economy etc.) for the two players. I am not very convinced. This is going to be an Achilles heel unless ICICI gets rid of it through an IPO.