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UTI Bank: OPM drives profits

May 2, 2002

UTI Bank continued its growth spree in the fourth quarter, with 51% rise in earnings and a 28% growth in interest income. The bank's full year profits also recorded a sharp increase of 56% with 33% growth in topline.

(Rs m)4QFY014QFY02ChangeFY01FY02Change
Income from operations 2,727 3,493 28.1% 8,896 11,795 32.6%
Other Income 761 1,185 55.8% 1,630 4,159 155.1%
Interest expense 2,449 2,679 9.4% 7,914 9,800 23.8%
Net interest income 278 815 193.3% 983 1,995 103.1%
Other expenses 454 659 45.3% 1,288 2,055 59.6%
Operating Profit (176) 155 -188.1% (305) (59)-80.5%
Operating Profit Margin (%)-6.5%4.4% -3.4%-0.5% 
Provisions and contingencies 190 744291.5% 284 1,966591.4%
Profit before Tax 395 59651.1% 1,041 2,134105.0%
Tax 115 17652.2% 180 792341.4%
Profit after Tax/(Loss) 279 42150.6% 861 1,34155.8%
Net profit margin (%)10.2%12.0% 9.7%11.4% 
No. of Shares (m) 131.9 191.9   131.9 191.9  
Diluted Earnings per share*5.88.8 4.57.0 
P/E Ratio 4.5  5.7 

The bank's aggressive retail initiatives are reflected in fourth quarter results. The bank managed to bring back positive operating margins in 4QFY02 to 4.4% from a negative 2.6% during the first nine months of FY02. Its cost to income ratio declined to 33% in 4QFY02 from 44% in the comparable previous quarter. Also, it efforts of increasing low cost funds helped in reducing its cost of borrowings. This is reflected from a less than proportionate rise in interest expense of the bank.

UTI Bank's high profit growth was also supported by an exponential rise in other income, mainly from money market trading. More than expected fall in interest rates in the economy, pushed up bond prices, which accorded extraordinary gains to the bank. The bank has however, appropriated Rs 700 m into the investment fluctuation reserve, as a measure of prudence on the future interest rate risk on investment. The contribution of other income to total income increased to 26% in FY02 from 16% in FY01. The bank's cash management services business is also expected to have supported a 155% jump in other income.

During the year, the bank increased non-performing assets provision to improve the coverage ratio and to bring down the net NPAs to advances ratio. The detail financial results are not available. However, we expect the NPA ratio to have come down to about 2.7% with coverage of over 40%. This is much better compared to NPA coverage ratio of just 20% in FY01.

At the current market price of Rs 40, UTI Bank is trading at a P/E of 6x and Price/Book value ratio of 1.2x. The bank's fourth quarter results are above our expectations in terms of higher total income growth. The bank's retail initiatives are expected to payoff in the coming years through higher business and revenue growth. Its valuations will also get a re-rating accordingly.

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