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Bank of Punjab: Other income powers 3Q - Views on News from Equitymaster
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  • Mar 27, 2002

    Bank of Punjab: Other income powers 3Q

    After having reported a sharp 65% decline in second quarter earnings, Bank of Punjab, posted a 42% rise in December quarter profits. A four fold rise in non-interest income helped the bank to report a strong growth in bottomline.

    (Rs m) 3QFY01 3QFY02 Change
    Income from operations 800 933 16.7%
    Other Income 84 329 292.8%
    Interest expense 524 713 36.1%
    Net interest income 276 220 -20.2%
    Other expenses 250 369 47.5%
    Operating Profit 26 (148)  
    Operating Profit Margin (%) 3.2% -15.9%  
    Provisions and contingencies 4 11 198.9%
    Profit before Tax 106 169 59.8%
    Tax 25 54 116.0%
    Profit after Tax/(Loss) 81 115 42.4%
    Net profit margin (%) 10.1% 12.4%  
    No. of Shares (m) 105.0 105.0  
    Diluted Earnings per share* 3.1 4.4  
    P/E Ratio   3.2  

    During the quarter, the bank's interest expenses increased by 36%, resulting in a 20% drop in net interest income. A 17% growth in interest income was contributed by higher investment income. Although, the bank's cost to income ratio reduced to 67% from 70% in 3QFY01, it reported operating losses. This was due to slowdown in core loan income. In order to compensate for the slowdown in corporate loans, Bank of Punjab (BoP) is leveraging on retail market with an aim to grow its retail assets by 50% in the current fiscal.

    Nearly 300% rise in other income however, saved the day for the bank. The bank is planning to add new fee based services in the coming years, which would facilitate higher growth rates. Post tax profit growth was however, trimmed by higher provision for non-performing assets. The bank's net NPAs to advances ratio stood at 2.3% as on March 2001.

    At the current market price of Rs 14, Bank of Punjab is trading at a P/E of 3x and Price/Book value ratio of 1x 3QFY02 annualised earnings. The stock has recently touched its 52 week high of Rs 17 in expectation of consolidation in the banking sector and speculation of stake sale by the bank to foreign banks. On a fundamental basis, BoP's valuations are likely to remain depressed until it brings stability in financial performance.



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