Entry into microfinancing represents a considerable amount to risk, due to the financial instability of the target market. The following chart highlights the most significant changes affecting the financial health of ICICI bank that result from expenditures associated with entry into the rural finance venture. It compares key indicators and explains the effects of ICICI's most recent changes to their banking strategy. Income Statement for years 2003-2006 (in millions USD)

Total Revenue

Cost of Revenue

Gross Profit

Balance Sheet for years 2003-2006 (in millions USD)

Current Assets

Total Liabilities

Total Equity

Cash Flow for years 2003-2006 (in millions USD)

Net Income

Net Cash Flows Investing

Net Cash Flows Financing

Net Cash Flow

Data Source: Nasdaq.com (2007).

The income statement demonstrates the results of capital expenditures due to expansion over the past three years. In 2006, revenues increased, costs decreased, and thus gross profits increased as a result. This is demonstrated by the increase in assets for the years 2004/2005 that corresponds to an increase in costs for the same years. The Cash flow statement demonstrates the direct influence of these expenditures.

The significant rise in total liabilities for 2006 is a reflection of a combination of continued expansion efforts and the merger with Sangh Bank. As one can see, ICICI Bank was able to reduce a significant amount of there debt in 2006. They realized almost immediate increases in income as a result of their expansions. Profit margins increased steadily from -7% in 2003 to 9% in 2006 (Nasdaq.com, 2007). Operating margins demonstrated a similar pattern to cash flows and investment expenditures. However, this resulted in a net increase from 42% in 2003 to 51% in 2006. http://www.nasdaq.com/images/spacer.gif

Stock Valuation

Two essential elements must be present for a stock to be considered a growth stock. It must demonstrate growth in both sales and earnings. However, in the financial sector, one must be careful to choose a stock that demonstrates a stable growth pattern, for instance, short-term growth can be realized from a one-time event, such as sale of a major asset or a tax credit (Domash, 2007). One must be careful that the growth is due to steady increases in business, not a one-time event that could skew the results.

Many analysts focus on earnings per share as the key to stock valuation. ICIC Bank currently has an earnings per share of $1.38 USD (Nasdaq.com, 2007). This is healthy, but one must look at what is behind the EPS in order to determine real shareholder value. Our financial statement analysis demonstrated the effects of expenditures on the overall performance of the company. In 2006, the results of ICICI's efforts began to pay off and they were able to demonstrate real growth from their expenditures in previous years. This adds credibility to the EPS estimates for this company.

The return on equity is an important consideration as it can provide an excellent picture of the limits on a growth earnings. A company cannot grow earnings faster than its ROE without raising additional capital. If the ROE is too small then it will be impossible for the company to sustain growth without borrowing additional money. ICICI has already invested a considerable amount of capital into new projects. This would worry some analysts. However, the following chart demonstrates that ICICI Bank still has some room to grow.

As ICICI begins to realize increased revenues as a result of the expansion of its rural business, the ROE will increase. However, this also comes with a word of caution. ICICI Bank might have to curb its growth until some of its recent acquisitions and expenditures become profitable. ICICI is doing well, but this could end if they carelessly continue to expand too fast. This is a downside risk, but ICICI realizes this risk and will take steps to manage growth at a sustainable rate.

The final consideration in a growth stock is to take a long-term look at the stock price chart. One would not consider a stock to be of the growth category if there are significant downtrends for extended periods of time. ICICI bank currently has a bets of 1.17, which means that it is considerably more volatile than the U.S. markets. However, this can be expected in an emerging market, particularly when the company is breaking into a market where few have tread...

ICICI Bank stock demonstrates a strong consistent uptrend over the past five years.
Source: Nasdaq.com, 2007, Charts

SWOT Analysis

ICICI Bank is an exciting company because it saw an underserved niche and decided to seize the day. The ability to recognize an underserved market is a key strength that ICICI Bank has been able to capitalize on in the past. As happens with any business cycle, eventually the competition will see the opportunity, posing a potential threat to future endeavors. However, ICICI Bank will already have a considerable amount of brand equity with the local clientele, which will give them strength in the future.

The ability to develop emerging business niches within their own country represents a significant opportunity for ICICI Bank. Their key strength is their proven track record of success in starting new, high-risk endeavors successfully, as demonstrated by the success of their Insurance endeavors. ICICI bank has a reputation for excellent risk management. This will undoubtedly be a key strength and asset to their continued growth.

The only real thereat facing ICICI Bank is the potential for competition to enter into the area before the bank has the opportunity to establish a foothold. However, this is not considered to be a significant threat because few competitors have the financial capital available to begin such a project. An analysis of ICICI's financial positions reveals few weakness, other than a lack of brand equity in the rural areas. However, a proper marketing campaign can quickly remedy this potential problem.

Recommendations

The criteria for picking different classes of stocks vary according to the purposes and goals of the investor. For growth stocks, the most important indicators of stability and long-term growth are long-term growth rate, ROE and EPS. They are different for value and income stocks. There are many different methods for determining which stocks demonstrate the best potential for growth in the future. Every analyst will find their favorite method and will place different weights on variables. However, many analysts agree that when considering growth stocks, past performance is a key indicator of future performance.

However, in addition to past performance, one must also consider any changes in strategy that the company has undergone that could affect present and future trends. When one looks at the five-year stock price chart for ICICI Bank, it appears that even when they made considerable capital investments in developing new, and risky, markets stockholders saw the potential for growth and did not feel that the risk was too great. This resulted in a long-term uptrend for ICICI Bank.

ICICI Bank's plan for growth is solid and has few serious threats to its success. It has a solid financial track record and strong fundamentals. The five-year stock growth record of ICICI demonstrates shareholder confidence in their ability to succeed. With the current unstable state of the U.S. economy, investors need to consider all of their options. The potential for growth in emerging markets presents lucrative opportunities for the careful investor. ICICI Bank is not a new player on the financial scene, but they have recognized a lucrative opportunity and decided to jump on it first. ICICI has many of the hallmarks of an excellent growth company. For this reason, ICICI Bank is a recommended stock for long-term growth of this company.

References

Das, K. (2006). India's ICICI Bank Targets 25 Million New Rural Customers. Innovations in Emerging Markets. Retrieved May 3, 2007 at http://ifcblog.ifc.org/emergingmarketsifc/2006/11/indias_icici_ba.html.

Domash, H. (2007). The Basics: 10 growth stocks that can't be stopped. Moneycentral. Retrieved May 3, 2007 at http://moneycentral.msn.com/content/Investing/Simplestrategies/P109819.asp

Jubak, J. (2006). 10 top stock picks for 2007. Jubak's Journal. Retrieved May 3, 2007 from: http://articles.moneycentral.msn.com/Investing/JubaksJournal/10TopStockPicksFor2007.aspx.

Nasdaq.com (2007). ICIC Bank. Infoquotes. Retrieved May 3, 2007 at http://www.nasdaq.com/reference/glossary.stm#EPS

Sorenson, B. (2007). Best Ideas for 2007 and Beyond: Get Savvy on Sectors. Retrieved May 3, 2007 at http://www.schwab.com/public/schwab/research_strategies/market_insight/investing_strategies/stocks/get_savvy_on_sectors.html?cmsid=P- 1660060&lvl1=research_strategies&lvl2=market_insight&refid=P-1048563&refpid=P- 1005231.