Annual Report and Accounts 2002-2003 – Subsidiary Companies Contents Tenth Annual Report of ICICI Securities Limited ............................................................................ 2 (a) Consolidated Financial Statements of ICICI Securities Limited and its Subsidiaries ...................................................................................................................17 (b) Eighth Annual Report of ICICI Brokerage Services Limited .............................................. 25 (c) Third Annual Report of ICICI Securities Holdings, Inc. ..................................................... 32 (d) Third Annual Report of ICICI Securities, Inc. ..................................................................... 37 Fifteenth Annual Report of ICICI Venture Funds Management Company Limited ...................... 41 Seventh Annual Report of ICICI International Limited ...................................................................51 Third Annual Report of ICICI Prudential Life Insurance Company Limited .................................. 55 Third Annual Report of ICICI Lombard General Insurance Company Limited ...............................73 Fourth Annual Report of ICICI Home Finance Company Limited ..................................................88 Third Annual Report of ICICI Investment Management Company Limited .................................. 98 Fourth Annual Report of ICICI Trusteeship Services Limited ..................................................... 103 1 ICICI BANK SUB AR 2K3 (001-016) 1 08/08/2003, 12:32 AM ICICI SECURITIES LIMITED 10TH ANNUAL REPORT AND ACCOUNTS 2002-2003 Directors Auditors Registered Office K.V. Kamath, Chairman N.M. Raiji & Co. 41/44, Minoo Desai Marg Lalita D. Gupte Chartered Accountants Colaba, Mumbai 400 005 Kalpana Morparia S. Mukherji Nachiket Mor Ramni Nirula, Managing Director & CEO directors‘ report to the members Your Directors have pleasure in presenting the Tenth Annual Report of ICICI Securities the year, with the disinvestments of the Shipping Corporation of India Limited, Limited (the Company), with the audited Statement of Accounts for the year ended National Aluminium Company Limited, Maruti Udyog Limited, Hindustan Organics March 31, 2003. Company Limited, National Fertilizers Limited and Madras Fertilizers Limited yet to CHANGE OF NAME be completed. However, with the beginning of the disinvestment process for Hindustan Petroleum Corporation Limited and Bharat Petroleum Corporation Limited Pursuant to the resolution passed by the members at the Extraordinary General due in the fiscal year 2003-2004, this activity is poised to regain the momentum. Meeting held on March 21, 2003, the Registrar of Companies accorded approval for Also, Mergers & Acquisitions (M&A) activity remained buoyant, with deals totalling the change in name of the Company from “ICICI Securities and Finance Company Rs. 391 billion completed during 2002-2003, an increase of 45% over Rs. 270 billion Limited” to “ICICI Securities Limited” effective April 7, 2003. completed in 2001-2002. Given this, the number of deals in the second half of FINANCIAL RESULTS (Rupees million) 2002-2003 suggests a relatively sustained level of future activity in the M&A market. 2002-2003 2001-2002 OVERALL PERFORMANCE Gross Income 3053.19 3788.05 The Company continued to deliver remarkable performance, in line with its forefront Profit before Interest, Depreciation & Tax 2380.05 3161.54 position in the industry. During the year, the Company’s net worth increased from Depreciation 15.31 13.44 Rs. 3.19 billion in 2001-2002 to Rs. 3.51 billion in 2002-2003, an increase of 10.03% Interest 871.15 1271.93 and after-tax return on net worth was 30.72%. Profit before Tax 1493.59 1876.17 DIVISION-WISE PERFORMANCE Provision for Tax 464.15 597.26 Profit after Tax 1029.44 1278.91 Fixed Income The profit after tax for the year ended March 31, 2003 was Rs. 1029.44 million. During the period under review, the Company continued to maintain its leadership After taking into account the balance of Rs. 140.92 million brought forward from position in all segments of the domestic fixed income markets. In the Primary the previous year, the profit available for appropriation is Rs. 1170.36 million of Dealership business, the Company surpassed its bidding and success targets which Rs. 102.94 million and Rs. 205.89 million have been transferred to General committed to the RBI. In the non-SLR business, the Company saw its turnover Reserve and Special Reserve respectively. increase by nearly 2.4 times to over Rs. 100 billion, confirming its status as one of BUSINESS ENVIRONMENT the leading players in this market. The Company also improved upon its profitability in the non-SLR business during the year. In the interest rate swaps market, the In 2002-2003, domestic economy proved to be resilient in the face of sluggish Company almost tripled its volumes in 2002-2003 and achieved a market share of global economy and a poor monsoon. While the fall in agricultural output has about 15%. This performance is remarkable for a non-banking entity in a market resulted in 2002-2003 growth declining to 4.4% as per the Central Statistical dominated by banks. Organisation’s estimates, the figure masks strong performance by industry (5.8% growth) and the continued good performance by services (7.0% growth). Investment Banking During the year under review, inflation rose, propelled by increase in prices of oil The Investment Banking operations of the Company, which is represented by industry and manufactured goods. and product groups, seeks to combine client-focused investment bankers with Interest rates exhibited volatility during the year, as markets coped with conflicting execution and industry expertise. Investment banking activities, mainly financial fortunes of domestic and global economies. Although markets suffered losses advisory and capital markets advisory, witnessed strong and sustainable growth in earlier due to the Indo-Pak tensions and doubts about monetary stance, sentiment its revenues during the year. Financial advisory activities included advisory improved from the second quarter onwards. Monsoon failure and doubts about assignments with respect to M&A, divestitures, corporate defense activities, global economic revival contributed to an uninterrupted rally in the third quarter and restructurings and spin-offs. Capital market activities included public offerings and the beginning of calendar 2003 before a sharp reversal was triggered by the private placements of equity and debt securities. U.S.-Iraq conflict. In the recent INDATA compilation of league tables, the Company was ranked 3rd During the year, the Reserve Bank of India (RBI) continued to maintain its soft rate in terms of deal value for 2002 as against 4th in 2001. The recent rankings published stance and cut the bank rate by 25 basis points (bps) and repo rate by 100 bps to by Bloomberg for the first quarter of 2003 places the Company as No.1 advisor for cope with the monsoon failure and to support industrial recovery. Also, RBI M&As in India, with closure of 4 deals aggregating to US$142.47 million. maintained comfortable liquidity throughout the year by way of a 75 bps reduction Financial (M & A) Advisory in Cash Reserve Ratio. The RBI was helped to a large extent by the strong foreign exchange inflows (RBI’s foreign currency assets increased by US$20bn to US$71bn During the period under review, the Company strengthened its M&A Advisory in 2002-2003) on the back of US dollar weakness in the global markets and the business with its strong team of senior M&A bankers, providing greater focus and strong performance on the current account. Globally, monetary easing cycle exceptional quality to its clients. The Company was actively engaged in advising continued with the U.S. Federal Reserve cutting rates by 50 bps and European clients in the telecom, cement, media, oil and gas, engineering, auto ancillary, Central Bank following suit with a 75 bps cut. Apart from a weak spell during the information technology, fertilizers and pharmaceutical sectors. Indo-Pak tensions in May last year, the rupee remained stable and capitalising on During 2002-2003, the notable deals completed by the Company includes the sale US dollar depreciation in the global markets, gained against the US dollar. During of promoter’s equity stake in Hughes Tele.Com Limited, advising a large telecom the year, the rupee appreciated by 2.65% even as the RBI mopped up the US dollar company engaged in long-distance services on investing into a basic telecom services to temper the pace of appreciation. company, managing open offers of equity shares of IBP Limited and Indian Although bond markets encountered volatility through the year and changed direction Petrochemicals Company Limited on behalf of Indian Oil Corporation Limited and a few times, the 10-year benchmark yield finished the year 115 bps lower. The Reliance Industries Limited respectively. The Company, in its first cross-border I-Sec Sovereign Bond Index (i-BEX) clocked principal returns of 5.9% and total returns transaction, also advised a major auto components company on the acquisition of of 15.0% in 2002-2003. Although the past year did not see the introduction of any a company based in the U.S. new products, fixed income markets can look forward to new products like STRIPS, The Company has also recently forayed into debt restructuring advisory. It has exchange-traded interest rate derivatives and credit derivatives in the year ahead. successfully