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Donald Francis

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  • ICICI Bank: The Slide Continues [View article]
    Thanks. I should have mentioned that.
    My contention is that ICICI Prudential Lif Insurance is also the biggest drag on ICICI Bank consolidated results, dragging down the bottomline by a huge Rs 5.77 Bn down from Rs.10.32 Bn in FY2008.

    It will be 2-3 years before ICICI Prudential Life Insurance starts adding to the bottomline, but till then ICICI Bank needs to show improved operating results, to inspire confidence.

    On Aug 14 12:55 PM Focus Advisory wrote:

    > I concur with much of the article, but what the author fails to mention
    > is the off balance sheet strength of ICICI.
    > Most notably, ICICI is majority owner of not yet profitable ICICI-Prudential...the
    > largest non goverment owned insurance company in India.
    > Regards
    Aug 16 04:36 AM | 1 Like Like |Link to Comment
  • ICICI Bank: The Slide Continues [View article]
    I hold HDFC Bank and Housing Development Finance Corporation (HDFC) too. Sorry about the typo.


    On Aug 14 06:46 AM User 149220 wrote:

    > Hi Donald,
    > Excellent Analysis. I was looking at the disclosures. It mentions
    > No positions in ICICI; long HDFC. Do you mean HDFC Bank or are you
    > saying HDFC itself. If not would that imply that you are staying
    > out of the banking sector completely and are more bullish on Housing
    > (
    > Thanks.
    > Waiting for you next post.
    > An awed reader.
    Aug 14 03:33 PM | Likes Like |Link to Comment
  • India Private Banks' Contingent Liabilities: Losing the Balance? [View article]
    Hello again Boris,

    I am a new author. Thank you for bearing with me if there have been some omissions on disclosures. I submitted by Email the first 2 articles - so disclosures got missed out/"no positions" supplied in by editors.

    If you would have observed, have always supported my statements with numbers backing up; so there's no agenda/viewpoint I am trying to push/prove ...only my interpretation of certain facts, with as complete a picture as possible. The contingent liability "hole" is what I plugged in this article. ICICI certainly appears better on this front ..but only to the extent of what has been disclosed/not disclosed, as remarked on in another comment.

    My stand is still consistent!

    On Apr 09 10:44 AM Boris Yeltsin wrote:

    > Donald, I hope you have now covered your short on ICICI and that
    > your audience was not talked into following your advice when you
    > started promoting your view (which I note was prior to your disclosure
    > - naughty, naughty). Not surprisingly, ICICI continues to outperform
    > HDFC given the extreme valuation differential. A very perilous pair-trade.
    Apr 12 07:08 AM | Likes Like |Link to Comment
  • India Private Banks' Contingent Liabilities: Losing the Balance? [View article]
    Thanks for the encouragement. Yes Snehal, you are right. The whole picture might well be very different when we have the complete disclosures in FY 2009 Annual Reports. While that may take a few more months, I tried to get at some interim estimates of the exposures, disputes, and level of disclosures/transparency of individual banks.

    Since from FY2009 Basel II disclosures will be applicable for Indian Banks, I guess we will able to get at some more details like RCA break-ups etc.

    I am interested in following and understanding these implications better, so will surely update here.

    On Apr 09 11:01 AM Snehal Dani wrote:

    > Dear Donald,
    > Once again a good article !
    > However, except for Axis bank figures which you mention as of y.e.31.03.08,
    > rest of the figures of the remaining banks are presuambly the interim
    > numbers which have been provided by the respective banks at different
    > points of time during the just concluded year ending 31.03.09. Probably
    > none of the figures present the complete picture of what happened
    > in the just concluded year ending 31.03.09.
    > Since the real problem of the derivatives transactions and off balance
    > sheet exposure has surfaced in the same year, unless we have a complete
    > picture of the whole of the year of the relevant banks, we may be
    > arriving at conclusions which may or may not be in sync with the
    > ground realities of actual defaults and disputes.
    > Is this understanding correct ?
    Apr 12 06:59 AM | Likes Like |Link to Comment
  • India Private Banks Comparison: HDFC a Clear Winner Over ICICI [View article]
    Mr Dani,

    Yes Bank and SBI point to good valuations. But those are of interest perhaps only to investors in the Indian market. Only ICICI and HDFC are publicly traded in US.

    Otherwise, the debate/discussion would have been far richer, I agree with you.

    On Apr 07 02:37 AM Snehal Dani wrote:

    > Very interesting read of point and counter point on the valuation
    > of HDFC Bank and ICICI Bank.
    > However, in the process, other gems cropping up in the analysis like
    > Yes Bank and State Bank are getting ignored.
    > There may be doubts on the asset quality of ICICI bank or richness
    > of valuation of HDFC bank but neither Yes bank nor State Bank suffer
    > from either of those doubts. Both are available at fair valuations.
    > Over a period of last decade or so, due to their pioneering role
    > in the Indian Banking in new generation pvt. sector banking space,
    > both HDFC bank and ICICI bank command so much of mindspace of the
    > investors that the other two equally or even more worthy gems are
    > being ignored and sidelined.
    > Snehal Dani.
    Apr 7 11:41 AM | Likes Like |Link to Comment
  • India Private Banks Comparison: HDFC a Clear Winner Over ICICI [View article]
    Some of the facts cited in the comment, don't seem to be entirely correct and/or convey the full picture. For the sake of investors, these need to be clarified more

    1. There is a sale of 600 nos by 1 Director in March 2009. However what should have been mentioned in the same breath is that some 4 directors including the MD bought double that number, a few months back. The insider trading details can be checked out here

    2. We are comparing consolidated financial statements. (bears out as subsisdiaries are being discussed) HDFC Bank's provision stands at 1.6% of Assets, double that of ICICI Bank's is at 0.85%. While Tier I Capital Adequcies are comparable, the lower NPA provisioning cover of just 0.54% by ICICI Bank (industry average is close to 2%), in a rising NPL scenario can only point to shoring out the balance sheet.

    3. Agree the ICICI Prudential subsidiary is a major constituent and should be considered while evaluating on a sum-of-parts basis. However to do any justice based on a discounted free cash flow basis, at this point, is just too far-fetched -because positive free cash flows are far far away. Infact ICICI Prudential is the biggest drain on ICICI Consolidated figures. Here's why -an excerpt from AR 2008

    "ICICI Prudential Life Insurance Company incurred a loss of Rs.13.95 billion in fiscal 2008 mainly due to higher business set-up costs in the initial years of rapid growth, non-amortisation of acquisition costs and reserving for actuarial liability in line with the insurance company accounting norms. These factors have resulted in statutory losses for the life insurance business since the company’s inception, as its business has grown rapidly year on year. The impact on consolidated profits on account of the loss is Rs.10.31 billion."

    4. HDFC is quoting at 2.91x Consolidated book vs ICICI's 1.1x Consolidated book. Yes it is richly valued for its impeccable record and performance. A

    On Apr 06 12:11 PM Boris Yeltsin wrote:

    > There are a few problems with some of the above analysis which readers
    > should be careful with:
    > 1) HDFC is trading at 3.8x book by now vs 0.93x for ICICI. This
    > is a huge difference, even accounting for HDFC's higher ROE and superior
    > provisioning. HDFC is currently priced for nigh on perfection at
    > 20x PE, a 1% dividend yield, and a market cap almost 20% above ICICI's,
    > notwithstanding that its consensus forecast 2009 earnings are over
    > 30% lower than ICICI's.
    > 2) ICICI needs to be valued on a sum of the parts basis given its
    > significant subsidiaries, which account for up to 40% of the value
    > of the group. A simple ROE comparison is not meaningful given the
    > accounting of the life insurance earnings at ICICI Prudential; free
    > cashflows over time are what matters. There are a range of still
    > well-capitalised insurance players that would gladly buy further
    > stakes in ICICI's insurance assets if ICICI were to ever seek to
    > / need to sell.
    > 3) The fact that HDFC's share price hasn't fallen below 2.5x book
    > does not prove the bank's safety, only its high price. Otherwise
    > why bother to perform any fundamental analysis whatsoever - you could
    > just rely on high prices to assure yourself of safety... Ultimately,
    > if there is a meaningful recession in India HDFC will certainly not
    > be immune, especially with provisions of only just over 1% of total
    > assets (the extra provisioning vs NPAs will not count for much, only
    > HDFC's comparable Tier 1 level, which is on par with ICICI's, will
    > matter). Banks are inherently highly leveraged - and HDFC more so
    > than ICICI based on Assets/Equity.
    > 4) If you look back to January, you will find that some senior management
    > of HDFC were sellers of their own shares at prices lower than the
    > current levels. I suspect they are not as convinced of their bank's
    > invincibility as some of the enthusiastic supporters at Seeking Alpha...
    Apr 7 11:34 AM | 2 Likes Like |Link to Comment
  • Instablogs on Seeking Alpha [View instapost]
    Hi David,

    Tried out Instablog with a first post. Everything works fine....except the image.
    No matter what I do, upload the image or paste the image, it disappears after posting. My post loses much of the significance minus the table...I even inserted the excel seemed to work...only 3 columns got chopped off:)

    I am sure these are initial glitches..and instablog will be a great addition!
    Apr 7 04:47 AM | 1 Like Like |Link to Comment
  • India Private Banks Comparison: HDFC a Clear Winner Over ICICI [View article]
    Thanks everyone for your valuable comments. Appreciate that the article merits discussion/debate from opposite viewpoints -makes for a richer perspective.

    Boris - valid points. Agree that ICICI may make for faster gains in a reviving/bull market, given that it is cheap, and on the hopes that the situation will not turn any worse from here on. The case I make is that ICICI is available cheap for a reason -infact several reasons -which are cause for big concerns. If FY2008 was bad, FY2009 is going to be worse -given likely higher NPLs and its lower provison coverage. Rising interest costs throughout FY2009 wouldn't make for any better margins either. Getting Invested in ICICI, knowing the dismal picture and in all probabilities a much worse picture for FY2009, is ill-advised. And we haven't even examined the exposure to derivatives and forward exchange contracts. ICICI Bank is in some trouble, and it will take some doing for the management (no doubt with a good, if aggressive, track record so far) to steer the group to safety. It shouldn't happen that in the chase for high returns, investors end up losing. On the other hand HDFC Bank, the very fact that even in the bear market, it hasnt cracked below 2.5x BV, shows that its a safe bet. ofcourse, its exemplary record vouches for that safety net. Historically it has traded much higher than current levels, too.

    ZYX007 -Your point is well taken. Price matters, but not at the cost of quality. Relevant more in these times when financial instituitions are in trouble everywhere, and a bank's asset quality or the lack of it, contingent liabilities, etc. are very difficult to assess with any certainity. I would play safe, yes.

    Subhankar - You have articulated it nicely in "The two different strategies are reflected in the current prices in a bear market. In a bull phase, ICICI Bank may show a faster rise." You have the last word:)

    Apr 2 03:07 PM | 2 Likes Like |Link to Comment