SBI has taken a hit in its profits by charging VRS expenses to the tune of Rs 8.8 bn in FY01. The bank's profits excluding VRS however jumped by 22%, in line with our expectations.
Operating Profit (EBDIT)
Operating Profit Margin (%)
Profit before Tax
Provisions & Contingencies
Profit after Tax/(Loss)
Provision for VRS
Net profit margin (%)
No. of Shares (eoy)
Diluted Earnings per share*
P/E (at current price)
SBI's topline grew by an impressive 23% in the fourth quarter of the year. However margins were depressed and operating expenses increased sharply. A 480 basis points drop in operating margins in 4QFY01 could be attributed to the inability of the bank to sustain yield on advances after a cut in deposit rates.
The cost to income ratio of the bank was also higher at 63% in 4QFY01 (56% in 4QFY00). But if we were to exclude an amount of Rs 4.4 bn written off towards the one-time issue expenses of India Millennium Deposits (to be redeemed at the end of five years, in 2005-06), the ratio declined to 57% in FY01 from 60% in FY00.
During the year SBI implemented a VRS plan to cut its operating costs and improve efficiency levels. The total cost of the scheme to the bank was Rs 23 bn. In FY01 the bank has made a provision of Rs 8.8 bn and plans to write off the balance expenditure equally over a period of four years.
SBI is moving towards the right direction by implementing the VRS, foraying into retail, technology upgradation plan and entering into the insurance business. In future it will be however difficult for the bank to operate at high margins considering the increasing competition and improving quality of services provided by other banks. Also, the bank will have to provide a higher amount as provisions for non performing assets, if the economic and industrial activity witnesses further downtrend.
At the current market price of Rs 228 SBI is trading at a P/E of 8x and Price/Book value ratio of 0.9x FY01 earnings.
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