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UTI Bank's net up 69% but..

May 5, 2001

UTI Bank has recorded a 69% jump in its net profits to Rs 861 m for the year ended March '01. The bank has also maintained a healthy topline growth of 83% for the year. It derives nearly 40% of its operating income from interest on investments.

(Rs m)FY00FY01Change4QFY004QFY01Change
Interest Income 4,833 8,896 84.1% 1,463 2,727 86.4%
Other Income 912 1,630 78.8% 425 761 79.2%
Interest Expenditure 3,929 7,914 101.4% 1,138 2,449 115.3%
Operating Profit (EBDIT) 904 983 8.7% 325 278 -14.6%
Operating Profit Margin (%)18.7%11.0% 22.2%10.2% 
Other Expenditure 654 1,288 96.9% 195 454 132.8%
Profit before Tax1,1621,32514.1%5555855.4%
Provisions & Contingencies375284-24.2% 198 190 -4.1%
Tax 278 180 -35.3% 84 115 37.8%
Profit after Tax/(Loss) 509 861 69.1% 273 279 2.3%
Net profit margin (%)10.5%9.7% 18.7%10.2% 
No. of Shares (eoy) 132 132   132 132  
Diluted Earnings per share*3.96.5 8.38.5 
P/E (at current price) 5.1  3.9 
*(annualised)      

The profit growth of the bank however, tapered down during the fourth quarter to 2%. Net profit growth was over 100% in the last three quarters due to substantial decline in provisions. Also in the last quarter its operating margins fell to 10.2% from 22% in the corresponding previous quarter. As a result operating profits actually dropped by 15% in 4QFY01.

UTI Bank invested aggressively during the year in expanding its network (through ATMs) and in technology. This has resulted in almost doubling of other expenses to Rs 1.3 bn. Also a provision of Rs 280 m for diminution in the value of investments (included in other expenses) trimmed the profit growth of the bank.

At the current market price of Rs 33, UTI Bank is trading at PER of 5x its FY01 earnings. Its price to book value ratio of 1.7x is comparable among its peers in the industry. Although the topline performance of the bank is commendable, sliding operating margins are a concern. This is on the back of high cost of funds. Its a challenge for the bank to improve its OPM considering the softer interest rate regime going forward. However, with the increase in saving account deposits and growing proportion of retail assets, UTI Bank will be able to move up its margins in future.

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