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>> APRIL 22, 2005
UTI Bank: Quality concerns!
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UTI Bank has posted a subdued performance of 33% YoY growth in its bottomline for 4QFY05 as compared to the 60% growth witnessed in 3QFY05. Despite 67% YoY growth in credit, the bank has posted operating margins of barely 6.1% for 4QFY05 and a dip of 18.0% YoY in operating profits. The growth in margins is primarily subdued due to the rise in interest expenses and operating expenses. The contribution from the other income side continues to be generous with the bank capitalizing on fee-based revenues (97% YoY).
| Rs (m) |
4QFY04 |
4QFY05 |
Change |
FY04 |
FY05 |
Change |
| Income from operations |
4,137 |
5,561 |
34.4% |
15,985 |
19,241 |
20.4% |
| Other Income |
1,025 |
1,664 |
62.3% |
5,402 |
4,158 |
-23.0% |
| Interest Expense |
2,474 |
3,597 |
45.4% |
10,214 |
11,929 |
16.8% |
| Net Interest Income |
1,663 |
1,964 |
18.1% |
5,771 |
7,312 |
26.7% |
| Other Expense |
1,249 |
1,627 |
30.3% |
4,192 |
5,813 |
38.7% |
| Operating Profit |
414 |
337 |
-18.6% |
1,579 |
1,499 |
-5.1% |
| Operating profit margin (%) |
10.0% |
6.1% |
|
9.9% |
7.8% |
|
| Provisions and contingencies |
326 |
247 |
-24.2% |
2,686 |
619 |
-77.0% |
| Profit before tax |
1,113 |
1,754 |
57.6% |
4,295 |
5,038 |
17.3% |
| Tax |
242 |
592 |
144.6% |
1,511 |
1,691 |
11.9% |
| Profit after tax/ (loss) |
871 |
1,162 |
33.4% |
2,784 |
3,347 |
20.2% |
| Net profit margin (%) |
21.1% |
20.9% |
|
17.4% |
17.4% |
|
| No. of shares (m) |
273.8 |
231.5 |
|
273.8 |
231.5 |
|
| Diluted earnings per share (Rs)* |
12.7 |
20.1 |
|
10.2 |
14.5 |
|
| P/E (x) |
|
|
|
|
16.5 |
|
| * (annualised) |
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UTI Bank is one of the new generation private sector banks and is promoted by some of the largest financial institutions in the country, namely Unit Trust of India (UTI), Life Insurance Corporation (LIC) and General Insurance Corporation (GIC). The bank has been focusing on the retail segment to fuel growth going forward. Its exposure to the retail segment stands at 30% of total advances. The bank's strategy is to aggressively tap the retail domain via the use of ATMs. Following this strategy the bank has been able to set up a large network of ATMs, thus enabling it to widen its reach.
What has driven performance in 4QFY05?
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 Robust credit growth: UTI bank, in sync with its repute of achieving aggressive growth has registered a robust 104% YoY growth in retail and 54% YoY growth in corporate assets during 4QFY05. However, the fall in yields have taken a toll on the bank’s net interest margins (NIM) that dipped further from 2.9% in 3QFY05 to 2.6% in this quarter. The fall in the current financial year has been significant considering that NIM at the end of 4QFY04 was 3.4%. The bank, however believes it now has a very credible and encouraging pipeline of corporate advances, indicative of the very visible upswing in the credit cycle in the country and as these translate into loan assets and replace existing short term advances, the NIM should begin to rise.
Segmental revenue
| |
FY04 |
% of total |
FY05 |
% of total |
Change |
| Retail & wholesale banking |
| Revenue |
27,845 |
93.6% |
21,203 |
84.9% |
-23.9% |
| Profit from banking operations |
2,655 |
61.9% |
3,133 |
62.0% |
18.0% |
| Profit margin |
9.5% |
|
14.8% |
|
|
| Other income |
| Treasury |
3,484 |
11.7% |
374 |
1.5% |
-89.3% |
| Fee income |
1,917 |
6.4% |
3,784 |
15.1% |
97.4% |
| Profit |
1,633 |
38.1% |
1,917 |
38.0% |
17.4% |
| Profit margin |
85.2% |
|
50.7% |
|
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| Total |
| Revenue |
29,762 |
|
24,987 |
|
-16.0% |
| Profit |
4,288 |
|
5,050 |
|
17.8% |
| Profit margin |
14.4% |
|
20.2% |
|
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Treasury tragedy: The bank’s other income continued to remain a significant contributor to bottomline despite the fact that it witnessed 89% fall in treasury profit during 4QFY05.This was because the treasury losses were offset by gains of 97% in fee income. Further, during FY05, trading income constituted 2% of the operating income, as against a proportion of 12%% in FY04, while that of fee income increased from 6% to 15% during the same period. This shows that the bank is progressively reducing its reliance on treasury income.
Mounting expenses: The bank’s other expenses continue to mount with the same having grown 30% YoY during 4QFY05. This can be attributed to a significant increase in infrastructure investments, including increase in the branch network ATMs.
Callous on asset quality: While the bank continues to cut back on provisioning, its asset quality has marginally deteriorated with net NPA to advances ratio increasing from 1.03% in FY04 to 1.07% in FY05. While most other banks are striving to improve on their asset quality, UTI Bank’s callousness on this front remains a matter of concern.
GDR issue: The bank raised capital in the form of GDR issue during 4QFY05 at a price of US$ 5.91 per GDR. Each GDR represented 1 equity share. Net of issue expenses, the bank received
US$ 40.9 m. Consequent to this issue, the networth of the bank increased by Rs 12.7 bn, a growth of 112%. The capital adequacy ratio of the bank stands at 12.7% as against 11.2% at the end of FY04.
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