Bank of Punjab: A dividend play - Views on News from Equitymaster

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Bank of Punjab: A dividend play

Jun 27, 2001

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)FY00FY01Change
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 Tax56864713.9%
Provisions & Contingencies 152 23957.1%
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 share3.23.3 
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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