Other income fuels UTI Bank's 1Q profits - Views on News from Equitymaster

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Other income fuels UTI Bank's 1Q profits

Jul 11, 2001

UTI Bank has recorded a 58% YoY jump in 1QFY02 net profits to Rs 254 m. Profit growth of the bank has been fueled by a substantial rise in other income.

(Rs m)1QFY011QFY02Change
Interest Income 1,688 2,664 57.8%
Other Income 298 1,009 239.2%
Interest Expenditure 1,525 2,388 56.6%
Operating Profit (EBDIT) 163 276 69.2%
Operating Profit Margin (%)9.7%10.4% 
Other Expenditure 249 426 71.5%
Profit before Tax212859304.7%
Provisions & Contingencies241917345.8%
Tax 49 187 281.4%
Profit after Tax/(Loss) 161 254 57.6%
Net profit margin (%)9.5%9.5% 
No. of Shares (eoy) 132 132  
Diluted Earnings per share*4.97.7 
P/E (at current price) 3.9 
*(annualised)   

The retail focus of the bank through a wide branch network and an ATM network coupled with increase in deposits enabled it to grow its interest income by 58% in 1QFY02. Operating margins of the bank have also shown a rise of 70 basis points to 10.4%. However, UTI Bank's operating margins are one of the lowest in the industry. Saving and current account deposits contributed marginal 15% to total deposits in FY01. As a result the bank's cost of funds is relatively high, resulting in lower operating margins.

Investment in technology and infrastructure resulted in a 72% rise in other income. UTI Bank's cost to income ratio however declined to 33% from 54% in 1QFY01. Similarly, the tax provision by the bank has increased by about 280% but the effective tax rate has come down to 22% from 23% in 1QFY01.

Adverse capital market and industrial scenario is reflected in higher provisioning. The bank's NPA ratio stood at 3.4% as on FY01. Its capital adequacy ratio (CAR) of 7.9% is however below the 9% norm by RBI. The bank is required to raise capital to maintain minimum CAR of 10% by FY02 and also to support its high growth.

At the current market price of Rs 30, UTI Bank is trading at PER of 3.7x FY02 projected earnings. The Bank's Price/Book value ratio of 1x is comparatively less than its private sector peers. If the bank raises the amount through equity it could result in a dilution in its equity base, resulting in reduction in earnings per share.


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