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PNB Gilts: Glittering performance

Feb 11, 2002

PNB Gilts continued its sterling financial performance during the December quarter. The company's earnings more than doubled to Rs 380 m and income from operation rose by 78% on a QoQ basis. On a YoY basis the company's financials are not comparable due to significant changes in interest rates during the last one year.

(Rs m)2QFY023QFY02Change9m FY019m FY02Change
Income from operations417 741 77.6% 1,389 1,776 27.8%
Other Income4 1 -75.2% 23 9 -62.7%
Interest expense142 133 -6.1% 1,074 434 -59.6%
Net interest income275 607 120.9% 315 1,342 325.8%
Other expenses20 18 -7.7% 29 50 73.6%
Operating Profit255 589 131.0% 286 1,292 351.2%
Operating Profit Margin (%)61.2%79.5% 20.6%72.8% 
Profit before Tax259 590 127.8% 310 1,301 320.2%
Tax94210123.0% 121 464283.5%
Profit after Tax/(Loss)165380130.5% 188 836343.8%
Net profit margin (%)39.9%51.3% 13.6%47.1% 
No. of Shares (m)135 135.0   135.0 135.0  
Diluted Earnings per share*4.911.3 1.98.2 
P/E Ratio 1.7  2.4 
*(annualised) 10.7  7.8 

The company achieved a turnover of Rs 842 bn for the first nine months of FY02 from outright sale and purchase of fixed income securities in both primary and secondary markets. Its turnover in the debt market in the first nine months witnessed a 3 fold rise compared to Rs 333 bn recorded for FY01. PNB Gilts trades aggressively in the debt market, which has enabled it to improve its turnover in the last six months. Also, its initiatives to focus on retail segment of the market, which is yet to take-off, is likely to increase its market share in the coming quarters.

Revenues from G-Sec securities accounted for 89% of its total revenues and 92% of pre tax profits. With softer interest rates, yields on G-Sec declined sharply and prices soared, which pushed the company's total income from operations. The company's financials are directly related to change in interest rates. Consequently, even a marginal volatility in interest rates can have a negative impact on profits. PNB Gilts however, maintains short duration portfolio with investments in liquid securities, which reduces the interest rate risk to an extent. The average holding period of its portfolio is in the range of 15-20 days.

The company's interest cost declined by 6% during the quarter and operating expenses too were lower by 8%. This fueled, PNB Gilts operating profits margin to about 80% in the December quarter from 61% in the September quarter and 66% in 3QFY01. A 123% rise in tax provision is attributed to additional provision on account of deferred tax as per Accounting Standard - 22.

PNB Gilts lower price to book value ratio of 0.7x is the result of inherent risk involved in the business of primary dealers from interest rates. If the interest rates moves up it may result in a loss on the trading stock of the company due to depreciation in the value of securities held by it. Also, gilt markets are sensitive to changes in the macro economic factors.

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