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GTB: Losing sheen - Views on News from Equitymaster
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  • Jul 1, 2002

    GTB: Losing sheen

    Global Trust Bank's (GTB) pre-tax loss intensified in the fourth quarter with a steep 37% drop in income from operations. The bank however, managed to post profits by taking credit of deferred tax assets of Rs 750 m. Loss in investor confidence impacted the bank's performance in FY02.

    (Rs m) 4QFY01 4QFY02 Change FY01 FY02 Change
    Income from operations 2,424 1,522 -37.2% 8,975 7,242 -19.3%
    Other Income 586 611 4.2% 1,644 2,292 39.4%
    Interest expense 2,114 1,348 -36.2% 6,972 6,359 -8.8%
    Net interest income 311 175 -43.8% 2,003 884 -55.9%
    Other expenses 454 456 0.3% 1,640 1,696 3.4%
    Operating Profit (144) (281) 95.6% 363 (812) -
    Operating Profit Margin (%) -5.9% -18.5%   4.0% -11.2%  
    Provisions and contingencies 905 978 8.1% 1,099 1,827 66.2%
    Profit before Tax (462) (648) 40.2% 908 (346) -
    Tax (235) (749) - 105 (749) -
    Profit after Tax/(Loss) (227) 101 -144.6% 803 403 -49.8%
    Net profit margin (%) -9.4% 6.7%   9.0% 5.6%  
    No. of Shares (m) 121.4 121.4   121.4 121.4  
    Diluted Earnings per share* -7.5 3.3   8.8 4.4  
    P/E Ratio   7.2     5.4  

    As can be seen from the interest income break-up table, the bank's revenues from all segments declined sharply. The bank has however, targeted a 20% growth in advances in the current fiscal and aims to disburse about Rs 2 bn in FY03. GTB also aims to increase its retail customer base to 1 m from 0.7 m currently, backed by retail initiatives. Currently, it has a network of 100 branches in 33 cities across India, which it plans to expand further. On the corporate front, the bank recently announced the launch of `Unnati' - a special product customised for the small and medium enterprises (SME) segment. This new product is expected to improve its business from small corporates. GTB's capital adequacy ratio of 11.2% is likely to support its growth plans.

    Interest income break-up
    (Rs m) 4QFY01 4QFY02 Change FY01 FY02 Change
    Interest on advances 998 738 -26.1% 4,902 3,965 -19.1%
    Income on investments 1,295 739 -42.9% 3,771 3,105 -17.7%
    Interest on balance with RBI 53 37 -30.4% 212 138 -35.0%
    Others 78 8 -89.5% 90 35 -61.2%
    Total 2,424 1,522 -37.2% 8,975 7,242 -19.3%

    With reduction in business, the bank's cost to income ratio increased significantly to 53% in FY02 from 45% in the previous year. This resulted in operating loss of Rs 812 m for FY02 as against operating profits of Rs 363 m in the previous year. Over 60% rise in provisions for NPAs could have intensified the loss further but with deferred tax assets of Rs 750 m, the bank could manage to show profits for the year ended March '02. Over the last few years, GTB's loan portfolio has been tilted towards economy sensitive sectors (especially capital markets). Consequently, with a downturn in these sectors, the bank had to make huge provisions.

    At the current market price of Rs 24, GTB is trading at a P/E of 5x and price/book value ratio of 0.7x. The bank is searching for a foreign partner. Although, its valuations are on the lower side, considering its financial performance, GTB could find it difficult to attract foreign investors.



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