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SBI: Home Finance blues - Views on News from Equitymaster
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  • May 30, 2001

    SBI: Home Finance blues

    SBI Home Finance, a 28% subsidiary of SBI has recorded a net loss of Rs 217 m for the year ended March '01. The net loss was however less than Rs 245 m reported in FY00 and Rs 453 m in FY99. The company's topline is also witnessing tremendous pressure from private sector players.

    (Rs m) FY00 FY01 Change
    Income from Operations 530 401 -24.3%
    Other Income 5 1 -89.1%
    Interest Expenditure 698 532 -23.8%
    Operating Profit (EBDIT) (168) (131) -22.0%
    Operating Profit Margin (%) -31.7% -32.7%  
    Other Expenses 65 70 7.9%
    Depreciation 17 17 -2.4%
    Profit before Tax -245 -217 -11.5%
    Tax - -  
    Profit after Tax/(Loss) (245) (217) -11.5%
    Net profit margin (%) -46.3% -54.1%  
    No. of Shares (eoy) (m) 15.0 15.0  
    Diluted Earnings per share - -  
    P/E (at current price)   -  

    SBI Home Finance has incurred substantial losses in the past three years. During the year, the restructuring package involving infusion of capital and loan have been approved by the principal promoter of the company, State Bank of India. SBI has also sanctioned line of credit for operational purposes. The company's deteriorating financial health is however, not likely to improve in the near term considering the competitive factors.

    The company's private sector competitors, HDFC and ICICI are growing their market share aggressively in the housing finance business. HDFC's profits in FY01 grew by 18% and ICICI Home Finance's profits stood at 15.6 m, up from 0.5 m in FY00. While HDFC has a 55% of the market share, ICICI, the new entrant also holds around 1%. The quality of services provided by these players with faster processing of loan applications has placed them ahead of others.

    At the current market price of Rs 6.6, SBI Home Finance is trading at a Price/Book value ratio of 0.5x (excluding accumulated losses). The company being a subsidiary of SBI could survive if its current strategies are changed as per the requirement of the market. Consolidation in the housing finance industry is likely, as quality of services provided plays an important role in driving the business.



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