IDBI, has reported lackluster topline numbers for FY03. However the financial institution (FI) reported improvement in operating margins, thus helping reduce the fall in net profits. For FY03, the FI has reported a 5% fall in bottomline on the back of a 6% fall in topline. Operating margins, on the other hand, have improved considerably by nearly 600 basis points.
Income from Operations
Net interest income
Operating Profit Margin (%)
Provisions and Contingencies
Profit before Tax
Profit after Tax/(Loss)
Net Profit Margin (%)
No. of Shares (m)
Diluted Earnings per share*
Poor credit offtake from the industrial sector has taken its toll on the institution's interest income. Disbursals have reduced in FY03 taking a toll on interest income. Apart from that banks seem to have slowly eaten in to the target market of IDBI. In contrast, banks have improved their topline performance considerably by focusing on the retail sector where IDBI has almost no exposure. Operating margins have improved by nearly 600 basis points in FY03, mainly due to an improvement in net interest income as well as a 1% reduction other expenses.
IDBI has been able to prepay and repay high cost debt and this has significantly brought down its interest expenditure. Thus, despite a fall in topline the institution has been able to improve its net interest income. As is the case with banks and other financial institutions, IDBI has also cut costs in order to improve efficiencies. All these factors have led to an improvement in operating margins.
Provisioning seems to have increased significantly in FY03. This augurs well for an institution with large amount of NPAs in its books. However NPAs are still fairly large enough to wipe out nearly the entire net worth of the institution. In FY02 the provision coverage ratio of the institution stood at 50%, which is low compared to banks. However, since the institution has made considerable provisioning in FY03, this ratio may rise.
At Rs 18, the stock is trading at a P/E multiple of 3x its FY03 earnings. IDBI has taken aggressive steps to tackle the issue of NPAs and has been helped to a great extent by the bailout package from the government. NPA concerns not withstanding, slow growth in disbursals is becoming a concern. The institution has set aggressive disbursal targets for FY04, however it needs to assure investors on the issue of NPAs and, simultaneously, on the growth of its core interest income in order to win back their confidence.
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