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UTI Bank: Provision'less' PAT growth - Views on News from Equitymaster
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  • May 6, 2003

    UTI Bank: Provision'less' PAT growth

    UTI Bank, one of the largest private sector banks in the country has reported a 43% jump in its net profits for FY03. Topline on the other hand has increased by 24% in the same period. This performance has been consistent with the bank's performance throughout the year. Infact, on a nine month basis, net profits had grown by a similar 43%. In 4QFY03 also net profit growth has been 44% while topline has grown by 14% on a YoY basis.

    (Rs m) 4QFY02 4QFY03 Change FY02 FY03 Change
    Income from Operations 3,492 3,965 13.5% 11,785 14,648 24.3%
    Other Income 1,185 1,197 1.0% 4,159 4,105 -1.3%
    Interest Expenses 2,679 2,865 7.0% 9,800 11,424 16.6%
    Net interest income 814 1,100 35.2% 1,985 3,224 62.4%
    Other Expenses 669 1,037 55.1% 2,071 3,229 55.9%
    Operating Profit 145 63 (86) (5)
    Operating Profit Margin (%) 4.2% 1.6%   -0.7% 0.0%  
    Provisions and Contingencies 734 306 -58.4% 1,939 1,088 -43.9%
    Profit before Tax 596 954 60.1% 2,134 3,012 41.2%
    Tax 176 349 98.7% 792 1,090 37.6%
    Profit after Tax/(Loss) 421 605 43.9% 1,341 1,922 43.3%
    Net Profit Margin (%) 12.0% 15.3%   11.4% 13.1%  
    No. of Shares (m) 191.8 230.2   191.8 230.2  
    Diluted Earnings per share* 7.3 10.5   5.8 8.3  
    P/E Ratio   4.5     5.6  

    Growth in topline has been mainly fueled by a robust 34% growth in advances. Retail assets, as is true for almost all banks in FY03 has been the growth driver for UTI Bank's advances also. Retail advances have registered a growth of 354% in FY03 and they now constitute 15% (5%) of total advances. However apart from the growth in topline net interest income growth has been a key feature of the bank's financial performance in FY03. Net interest income has grown by 62% in FY03, mainly driven by topline growth as well as fall in interest costs. Net Interest Margin (NIM) stands at 2.1% compared to 1.7% a year ago. But having said that we must also point out that NIM for UTI Bank is still lower than its peers like HDFC Bank and IDBI Bank.

    (Rs m) FY02 FY03 Change
    Interest on advances 5,396 7,361 36.4%
    Income from investments 5,380 5,762 7.1%
    Interest on balance with RBI 306 368 20.4%
    Others 704 1,156 64.2%
    Total 11,785 14,648 24.3%

    NIM improvement has been brought about by increasingly leveraging on retail deposits. The bank has been able to reduce its average cost of funds from 8.7% to 7.5%. While the net interest margins have improved , operating margins have fallen as the bank was still in the expansionary phase in FY03 and hence its operating expenses are still growing considerably. The bank has increased its branches by 53 and has increased its ATMs to 822 (491). This goes to show the aggressive infrastructure expansion initiative the bank had undertaken in FY03. Due to this, cost to income ratio of the bank has deteriorated to 44% compared to 34% in FY02.

    While operating profit has been poor other income and lower provisioning have helped the bank increase its profit before tax considerably. The bank's other income has fallen in FY03, as trading income has reduced significantly. On the positive side however fee income growth has been considerable (47%) over last year, indicating that going forward, the bank's other income growth will be dependent more on fee income. Hence we may also observe a fall in other income going forward till fee income assumes a large part of other income.

    UTI Bank has considerably reduced its NPA provisioning in FY03. Provisioning in 4QFY03 has been even lower compared to the same period last year. Despite this the bank has been able to bring down its net NPAs to advances ratio has fallen to 1.9% compared to 2.7% last year. But we must point out that compared to its peers like HDFC Bank and IDBI Bank, net NPA ratio is still relatively high. While the bank seem to be addressing the issue of high NPAs, the speed with which it does this still remains in question, as observed by the fall in provisioning.

    The stock is currently trading at Rs 47, a price to book value ratio of 1.2x. As mentioned in our analysis of the December quarter results, we reiterate that while UTI Bank has reported a robust growth in its core business of disbursals as well as improvement in its operating profits, net profit growth has been led mainly by lower provisioning. Provisioning ratio for UTI bank is still lower compared to peers like IDBI Bank and HDFC Bank. While the retail thrust is paying off, management of NPAs and competition may be the key factor to look out going forward.



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