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IDBI: Asset quality concerns - Views on News from Equitymaster
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  • May 24, 2001

    IDBI: Asset quality concerns

    IDBI, India's largest development financial institution with an asset base of over Rs 721 bn (in FY00) is expected to declare its annual results next week. We take a look at its past performance and try and evaluate its future.

    IDBI had reported a dismal financial performance for the nine months ended December '00. IDBI's profits dropped by 15% while the topline showed a marginal growth of 2%.The decline in net profits was mainly due to 44% fall in other income. This was attributed to lower capital gains on sale of investments (Rs 769 m against Rs 1,998 m in the previous period) due to depressed state of capital markets. On the other hand a marginal growth in topline was the result of fall in sanctions and disbursements of the institution. During the first nine months of FY01 both sanctions (Rs 193 bn) and disbursements (Rs 105 bn) were lower by 1.8% and 4.5% respectively.

    (Rs m) 9m FY00 9m FY01 Change
    Income from Operations 57,179 58,268 1.9%
    Other Income 1,876 1,049 -44.1%
    Interest & Depreciation 47,451 49,723 4.8%
    Operating Profit (EBDIT) 9,728 8,545 -12.2%
    Operating Profit Margin (%) 17.0% 14.7%  
    Other Expenses 1,919 1,937 0.9%
    Depreciation 1,567 1,725 10.1%
    Profit before Tax 8,118 5,932 -26.9%
    Provisions and write offs 1,050 500 -52.4%
    Tax 700 -  
    Profit after Tax/(Loss) 6,368 5,432 -14.7%
    Net profit margin (%) 11.1% 9.3%  
    Number of shares (eoy) 660 652.8#  
    Diluted Earnings per share* 13.0 11.1  
    P/E (at current price)   2.3  
    # Including bonus in ratio of 3:5      

    Infrastructure finance constituted 36% of total sanctions and 21% of total disbursements. Power and telecom sector accounted for major demand from funds in this sector. Industry wise the share of electricity generation at 26.6% was the highest in the overall sanctions, followed by services 14.7%, chemicals 9.5%, petrochemicals 6.7% and telecom 6.3%. These five industries together accounted for the balance 64% of total sanctions and 48% of total disbursements.

    IDBI's asset portfolio is well diversified across industries and clients. However, the recessionary conditions in the economy over the past few years have affected its asset quality. Its net NPAs to advances ratio increased to 13.4% in FY00 from 12% in FY99. Improvement in the economic conditions leading to positive change in financial condition of many industries (specially commodities) could aid the growth prospects of IDBI. The key challenge however remains to achieve an incremental growth without compromising the asset quality.

    IDBI's earnings are under constant pressure due to deteriorating asset quality, lower interest spread, and relatively low income diversity. Although, the institution is moving towards fee based income by entering into mutual funds and insurance segment, in the near term earnings are likely to be lower.

    At the current market price of Rs 25, IDBI trades at a P/E multiple of 2 times its 9 months FY01 annualised earnings and price to book value ratio of 0.2x. The institution has declared bonus in ratio of 3:5 during the December quarter. IDBI's comparatively lower valuations than its peers (ICICI and HDFC) are due to concern over quality of its assets and inability to sustain the growth by venturing into new areas.



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    Aug 23, 2017 (Close)


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