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IDBI: Provisions hit earnings - Views on News from Equitymaster
 
 
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  • Jan 29, 2002

    IDBI: Provisions hit earnings

    Dismal growth in industrial production and a slowdown in demand for project finance continued to hit IDBI's financial performance. IDBI's interest income declined marginally in the December quarter and earnings dropped by 77%.

    (Rs m) 3QFY01 3QFY02 Change
    Income from operations 19,230 19,094 -0.7%
    Other Income 392 213 -45.7%
    Interest expense 16,714 15,569 -6.9%
    Net interest income 2,516 3,525 40.1%
    Other expenses 1,240 1,213 -2.2%
    Operating Profit 1,276 2,312 81.2%
    Operating Profit Margin (%) 6.6% 12.1%  
    Provisions and contingencies 0 2,173 -
    Profit before Tax 1,668 352 -78.9%
    Tax 120 - -
    Profit after Tax/(Loss) 1,548 352 -77.3%
    Net profit margin (%) 8.0% 1.8%  
    No. of Shares 652.8 652.8  
    Diluted Earnings per share* 9.5 2.2  
    P/E Ratio   6.7  
    *(annualised)      

    IDBI's net interest income jumped by 40% thanks to reduction in interest cost. The institution has refinanced its high cost debt by raising funds at lower cost. Its operating expenses also declined by 2% during the quarter. Consequently, IDBI's cost to income ratio declined to 33% from 43% in 3QFY01. Reduction in interest cost and other expenses escalated its operating profits by 81%.

    The institution's other income declined by 46% in the December quarter. This coupled with higher provisions for non-performing assets trimmed IDBI's earnings. Year to date, IDBI has provided Rs 6 bn on account of provisions for bad loans. IDBI had not made any provision in FY01 and consequently its net NPA ratio was on the higher side at 14.2%. In FY02 the institution's net NPA ratio is expected to be around 13.7% with its efforts to increase provision amount quarter over quarter.

    At the current market price of Rs 15, IDBI is trading at adjusted Price/Book value ratio of 1.8x FY02 projected earnings. IDBI's net NPAs account for 94% of its networth. The institution is taking steps to clear accounts by making higher provisions. However, it will take atleast 5-6 years for IDBI to increase its provision coverage to 50%. Until then its earnings are likely to remain depressed.

     

     

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