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Vysya Bank: Business under pressure

Apr 12, 2002

Vysya Bank has been in the limelight over the past few months. The bank's stock price witnessed a sharp rise of over 80% in the last three months to Rs 244 currently. Expectations of ING increasing its stake in the bank at premium valuations fueled the buying interest in the stock. The Dutch banking major, Bank Brussels Lambert (subsidiary of ING group) holds a 20% stake in the bank. It aims to increase the stake further to 49% and is awaiting the RBI's approval.

(Rs m) 3QFY01 3QFY02 Change 9m FY01 9m FY02 Change
Income from operations 2,289 2,152 -6.0% 6,690 6,949 3.9%
Other Income 254 607 138.5% 771 1,794 132.8%
Interest expense 1,813 1,778 -1.9% 5,361 5,730 6.9%
Net interest income 476 374 -21.4% 1,329 1,218 -8.3%
Other expenses 444 536 20.7% 1,330 1,612 21.2%
Operating Profit 32 (162)   (0) (394)  
Operating Profit Margin (%) 1.4% -7.5%   0.0% -5.7%  
Provisions and contingencies 15 179 1093.3% 155 633 308.3%
Profit before Tax 271 266 -2.0% 615 768 24.8%
Tax 180 42 -76.7% 330 182 -44.8%
Profit after Tax/(Loss) 91 224 145.1% 285 586 105.3%
Net profit margin (%) 4.0% 10.4%   4.3% 8.4%  
No. of Shares (m) 19.8 22.6   19.8 22.6  
Diluted Earnings per share* 16.2 39.6   16.8 34.4  
P/E Ratio   6.2     7.1  
*(annualised)            

Meanwhile, the bank reported discouraging financial performance for the nine months ended December 2002. Its interest income grew by a marginal 4%. Post tax profits however, doubled due to lower provision for tax and higher fee based income. For the first nine months of FY02, its core interest income from advances remained flat while investment income increased by 6%. Lower demand for credit trimmed the bank's topline growth.

The bank is leveraging on other income to fuel bottomline growth. The proportion of other income to total income doubled to 21% in 9m FY02 from 10% in the comparable previous period. The bank's treasury division provides services to varied client base through deposits, corporate paper, forex, derivatives, bonds and gilts. It expects nearly 300% rise in revenues from treasury operations for the year ended March 2002.

Revenue mix
(Rs m) 3QFY01 3QFY02 Change 9m FY01 9m FY02 Change
Interest on advances 1,132 1,093 -3.5% 3,425 3,403 -0.6%
Income on investments 809 810 0.1% 2,438 2,588 6.2%
Interest on balance with RBI 340 249 -26.9% 782 942 20.4%
Others 7 0 -95.9% 44 15 -66.1%
Total 2,289 2,152 -6.0% 6,690 6,949 3.9%

Vysya Bank lags behind its private sector peers in terms of technology upgradation, as only 57 of its total 480 branches have been networked. The bank however, aims to network 200 branches by late 2002, which would cover about 80% of its total retail business. It plans to make investments of about Rs 600 m for the same. The bank's cost to income ratio at 54% would decline further once all the branches are integrated.

At the current market price of Rs 244 Vysya Bank is trading at a P/E of 7x, 9m FY02 annualised earnings and Price/Book value ratio of a little over 1x. The bank is geared well in terms of capital with capital adequacy ratio (CAR) of 13.5% as on December 2001. This will facilitate the bank's business expansion plans. However, its regional nature (south based), higher NPA ratio (at 5% as on March 2002) and competitive pressure on business, could impact its financial performance in the coming quarters. The stock looks priced at the current levels.


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