Federal Bank, one of the largest old private sector bank has reported a 32% jump in profits backed by a sharp rise in operating margins. The bank's profits in the fourth quarter however dipped by 46%.
Operating Profit (EBDIT)
Operating Profit Margin (%)
Profit before Tax
Provisions & Contingencies
Profit after Tax/(Loss)
Net profit margin (%)
No. of Shares (eoy)
Diluted Earnings per share*
P/E (at current price)
The sharp drop in profits in fourth quarter is attributed to higher tax and provisions apart from fall in operating margins. Other income too registered a negative growth of 4%.
The bank's topline growth of 4% was disappointing. This was due to comparatively slow growth rate in advances and deposits which rose by 20% and 19% respectively. Priority sector advances contributed 62% of the net bank credit against the RBI stipulated mark of 40%. Also, its credit to deposit ratio of 64%, was much above its peers in the banking sector. These factors had contributed in increasing the provisioning requirement for non-performing assets. The amount of provision in the fourth quarter rose by 37% to Rs 348 m. The bank's ratio of net NPA to advances was over 8% as on March '00.
During the year Federal Bank has successfully reduced the cost of deposits by 85 basis points to 9%. This has resulted in the sharp rise in operating profits margins. Its interest spread of 4.5% is comparable amongst the best in the industry.
At the current market price of Rs 50 Federal Bank is trading at a P/E of 2 times and Price/Book value ratio of just 0.3 times. The reason for bank's lower valuations are its comparatively high NPA ratio and regional nature. Provisions for non-performing assets was more than 25% of networth in the current year. Also, it is a regional bank with most branches located in Kerala, out of the total 400 branches.
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