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UTI Bank: On the growth track

Jan 2, 2002

Despite a slowdown in credit off-take, UTI Bank reported encouraging financial performance during the first half of the current year. The bank’s pre tax profits grew by four fold on the back of triple digit growth in other income and a significant reduction in cost to income ratio. UTI Bank is focusing on fee-based income to fuel its earnings growth. During 1HFY02, the bank’s treasury operations accounted for 36% of its pre tax profits, followed by 17% from retail assets and the balance 47% from corporate loans. Treasury operations of the bank have been broadened to include liquidity management, forex, money market and derivative trading.

The bank’s constant effort to drive other income is likely to enhance its earnings in the coming quarters. It has recently entered into agreement with BNP Paribas for sharing of its ATMs across the country. It has also decided to start currency chest operations and signed an agreement with the RBI. Other income now accounts for a quarter of its total income.

Financial snapshot
Particulars 3QFY00 3QFY01 Change 3QFY02E Change
Interest Income 1,159 2,376 105.0% 2,969 25.0%
Other Income 144 283 96.0% 991 250.0%
Interest Expenses 925 2,048 121.4% 2,524 23.2%
Net interest income 234 327 61.4% 445 135.2%
Other Expenses 153 316 126.5% 546 93.0%
Provisions & contingencies 53 29 -45.3% 338 1061.5%
Profits Before Tax 172 265 30.6% 552 201.7%
Tax 74 36 -51.8% 223 523.4%
Net Profit 98 230 133.3% 330 43.2%
Equity shares (m) 131.9 131.9   131.9  

Key ratios
Particulars 3QFY00 3QFY01 3QFY02E
OPM (excld. other exps.) 20.2% 13.8% 15.0%
Cost to income ratio 40.5% 51.8% 38.0%
PBT margin 14.8% 11.2% 18.6%
NPM 8.5% 9.7% 11.1%
EPS (Rs) 3.0 7.0 10.0

UTI Bank is expected to declare its third quarter results in the next week. We expect the bank to report over 40% growth in earnings and 25% growth in interest income. The bank’s interest margins are expected to move up by about 120 basis points due to increasing proportion of low cost funds. During the first half also, saving bank account deposits rose sharply by 71%.

However, higher provisions for non-performing assets would continue to depress its bottomline until the bank’s provision coverage ratio matches the RBI guidelines. As on March 31, 2001, its NPA coverage ratio stood at just 20% as against 50% prescribed by the RBI in the next three years. Consequently, the bank is making higher provision in the current year to adhere to the norms. This would also show a cleaner picture of its accounts.

At the current market price of Rs 26, UTI Bank is trading at a P/E of 4x and Price/Book Value ratio of 1x, FY02 projected earnings. The bank is expected to report over 50% growth in earnings in the current year.

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