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Bank of Punjab: A dividend play - Views on News from Equitymaster
 
 
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  • Jun 27, 2001

    Bank of Punjab: A dividend play

    Bank of Punjab (BOP), a new private sector bank, declared a marginal 5% rise in profits on the back of a huge 57% jump in provisioning amount in FY01. The bank's topline however grew sharply by 30%.

    (Rs m) FY00 FY01 Change
    Interest Income 2,628 3,404 29.5%
    Other Income 462 428 -7.4%
    Interest Expenditure 1,891 2,271 20.1%
    Operating Profit (EBDIT) 737 1,134 53.8%
    Operating Profit Margin (%) 28.0% 33.3%  
    Other Expenditure 631 915 44.9%
    Profit before Tax 568 647 13.9%
    Provisions & Contingencies 152 239 57.1%
    Tax 85 60 -29.4%
    Profit after Tax/(Loss) 331 348 5.2%
    Net profit margin (%) 12.6% 10.2%  
    No. of Shares (eoy) 105 105  
    Diluted Earnings per share 3.2 3.3  
    P/E (at current price)   4.2  

    The bank has also showed an improvement of over 500 basis points in its operating margins to 33% due to reduction in interest cost. As a result its operating profits soared by 54%. An increase in cost to income ratio to 59% in FY01 from 53% in FY00 however trimmed the profit growth of the bank (before taxes) to 14%.

    A downturn in the industrial activity beginning fourth quarter of the year took toll on the bank's performance. BOP provided Rs 229 m as provision for non-performing assets which was higher by 57% compared to the previous year. In the last four years, BOP's provisioning amount has increased at a compounded annual growth rate (CAGR) of 129%. The bank's NPA ratio as on FY00 stood at 2.3%.

    At the current market price of Rs 14, BOP is trading at a P/E of 4x and Price/Book value ratio of 0.8x. The bank has declared a dividend of 14%, which indicates a dividend yield ratio of 10% (tax free). BOP's capital adequacy ratio at 11% is comfortable and will aid the bank in its future expansion. The stock deserves a look if we consider only dividend yield ratio at 10%, which is relatively on a higher side in the current scenario of falling interest rates.

     

     

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