Getting in shape for the big jump

The country's premier financial institution Industrial Credit amp; Investment Corporation of India ICICI is on a roll. After absorbing th...

The country8217;s premier financial institution Industrial Credit amp; Investment Corporation of India ICICI is on a roll. After absorbing the ailing firm ITC Classic Finance and SCICI, ICICI has gone and snapped up Anagram Finance and has also launched two new mutual funds with its partner Prudential Asset Management. This comes close on the heels of launching the ICICI Safety Bonds.

With these mergers, ICICI has made its strategy very clear. It wants to become the dominant player in the retail financing business. After straddling the corporate finance market by dint of being a Government-backed financial institution, it is now going to enter an area where performance will determine success and size will determine profits.

But it is the size which gives it the strength and leverage to snap up smaller finance companies. Experts say that non-banking finance companies can survive only if their scale of operations are large. With thin margins, it is only the volume player which can hope to thrive in thisbusiness.There is no proposal to merge any of the five Anagram subsidiaries. They are Anagram Securities Ltd, Anagram Capital Markets Ltd, Anagram Stockbroking Ltd, Anagram Housing Finance Ltd and Anagram Wellington Asset Management Company.

The acquisition will give ICICI instant access in the Western region as Anagram has a 50-branch strong network. As a precondition to the merger, the investment companies of the Lalbhai family who were the original promoters of Anagram, will pump in Rs 125 crore which will be converted into quot;nominal equityquot; once the merger is ratified by the courts. The funds flow will make the net worth of the company positive and provide a cushion against its non-performing assets. Anagram has an asset base of Rs 983 crore.

Anagram had clocked a total income of Rs 257.25 crore and a net profit of Rs 34.76 crore for the year ended June 1997. On the other hand, ICICI8217;s net profit had shot up by 40 per cent to Rs 1080 crore for the year ended March 1998. Its assets also rose by 27 percent to Rs 45,920 crore.

Anagram is primarily engaged in retail financing of cars and trucks. Between 1992 and 1998 Anagram has built a strong retail franchise, a distribution network of more than 50 branches predominantly located in the prosperous states of Gujarat, Rajasthan and Maharashtra and it has a depositor base of 250,000.

The joint venture between ICICI and Prudential Corporation of UK called Prudential-ICICI Asset Management Company has launched three new open-ended mutual funds schemes. At a time when the individual investor has virtually fled the market, ICICI hopes to raise money on the strength of its reputation.

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It wasn8217;t completely unexpected. International credit rating agency, Standard amp; Poor8217;s Samp;P has downgraded India8217;s credit rating. This is in the wake of international sanctions imposed by the US. The downgrading of India8217;s foreign currency rating outlook to negative by Samp;P may see a further slide in the rupee vis-a-vis dollar and further fall in stockindices.

Samp;P said reduced access to concessional loans, which now comprise nearly 43 per cent of the country8217;s external debt, will increase the country8217;s dependence on higher cost private funding. The reduced flow of FDI and equity investment could affect the debt burden, says Samp;P. The investments have typically exceeded India8217;s modest current account deficit in recent years and facilitated a reduction in its external debt burden to about 165 per cent of exports from 243 per cent in 1994.