Shareholders were informed at the last AGM that export growth would drive profits in the next couple of years. That assurance seems to be coming good. With annual revenues rising marginally to Rs 205 crore from Rs 194 crore, profits fell a little from Rs 9.7 to Rs 9.1 crore, despite the VRS charges and the higher depreciation. Exports have increased by 50 per cent from Rs 12 crore to Rs 18.6 crore, representing a higher proportion of income. The internal target is a 30 per cent share of exports to total revenues over the next few years.

In addition to new markets (it now exports to 35 countries) and new products such as consumables for pipeline welding, it has done some belt tighening. Internal accruals have been used to retiredebt, reducing interest cost by 20 per cent in 1998-99. Despite some initial resistance, the VRS also seems to have been conducted sucessfully. The venture into pipeline consumables is a sensible one given the number of petroleum product pipelines that are being planned across the country, to be implemented over the next few years.

The earnings performance in FY 1997-98 was a marked departure from the high profits of the earlier years and returns the shareholders were accustomed to. Dividend in that year was slashed from 40 per cent to 25 per cent, and the hope at present is that given the better that expected performance, the dividend will be hiked partially to at least 30 per cent, further strengthening the value of the stock. The last quarter in particular has seen spectacular gains for Ador. While the quarter on quarter revenues did not increase by much, there was a marked improvement in margins and profits.

Against a nine month average operating margin of 11 per cent, the margin in the last quarterwas 16.79 per cent. Similarly, in the nine month period, the company earned a profit before tax of Rs 4.75 crore against a last quarter pre-tax figure of Rs 7.6 crore. Even if the higher other income component is removed in the last quarter, the adjusted pre-tax earning for the last quarter would be Rs 5.84 crore against the nine month adjusted pre-tax figure of 2.13 crore. The last quarter performance from Ador should also be a pointer to the performance of Esab India which has adopted a similar strategy of exporting consumables, mainly to subsidiaries of its parent company, Esab, Sweden.

ICICI; good move

The latest announcement from ICICI is that it is planning to grab a large market share in the retail finance market. For the current financial year (1999-2000) the sum that is being sought to be deployed will be Rs 4,000 crore. This is yet another major development in ICICI's overall approach to diversify its business risk among non-traditional businesses.

Hence the growing emphasis onstructured finance products and retail finance as opposed to project finance. In its 1997-98 annual report, the management had already made its intention clear that it will move into retail finance in a big way, keeping with its stated intent of providing a comprehensive range of financial products and services to various categories of consumers. Only last week, ICICI had announced its intention of sell a portion of its assets in the power sector to IDFC in order to reduce its project finance portfolio. Retail finance which was once the fragmented domain of NBFCs, is seeing the debut of some of the largest and strongest players in the financial services industry. Earlier, during the second half of 1998-99, HDFC announced it was splitting with Countrywide Finance and setting up a retail finance business of its own. The move makes sense for it not only diversifies product risk but also reduces the incidence of NPA in their portfolios.

The market share within the retail finance market which is currentlyfragmented will eventually be concentrated amongst the top players, such as ICICI, HDFC and the commercial banks. The valuations of the ICICI stock unfortunately seem to be behind the times and are still focused on asset quality.

The stock trades at a prospective p/e ratio of less than two times on its expected net profit of Rs 1,200 crore. It offers an equity yield of 13.09 per cent at its current price.