Low provisions drive UTI Bank's profits - Views on News from Equitymaster

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Low provisions drive UTI Bank's profits

Jan 23, 2001

UTI Bank has recorded a YoY 105% jump in its net profits to Rs 230 m in 3QFY01. However if we exclude the provision & contingencies from the profits it reflects an increase of 71%. Further, the investment in preference shares and tax free bonds enabled the bank to save tax.

(Rs m) 3QFY00 3QFY01 Change
Interest Income 1,159 2,376 105.0%
Other Income 144 283 96.0%
Interest Expenditure 925 2,048 121.4%
Operating Profit (EBDIT) 234 327 40.0%
Operating Profit Margin (%) 20.2% 13.8%  
Other Expenditure 125 283 126.5%
Depreciation 28 33 18.5%
Profit before Tax 226 295 30.6%
Provisions & Contingencies 53 29 -45.3%
Tax 74 36 -51.8%
Profit after Tax/(Loss) 99 230 133.3%
Net profit margin (%) 8.5% 9.7%  
No. of Shares (eoy) 132 132  
Diluted Earnings per share* 3.0 7.0  
P/E (at current price) 16.4 7.0  

The retail focus of the bank through wide branch and ATM network coupled with increase in deposits enabled the bank to grew its interest income by 105% during the 3QFY01. However due to more than proportionate increase in the interest expenses operating margins declined to 13.8% (20.2% in 3QFY00). The rise in the other expenses by 127% was mainly on account of investment in technology and infrastructure which will drive the bank's future profits.

Although UTI Bank's saving deposits doubled during the quarter, it contributes a marginal 5.6% to total deposits compared to more than 10% in case of HDFC Bank and ICICI Bank. High cost of deposits has resulted in lower operating margins to the bank.

At the current market price of Rs 49, UTI Bank is trading at PER of 7times its 31QFY01 annualised earnings. The Bank's Price/Book value ratio of 2.7 times is comparatively less than HDFC Bank's 8 times. The bank's focus on retail, e-commerce and improvement in NPA ratio is likely to trigger re-rating in the stock in future.

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