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Other income fuels UTI Bank's 1Q profits - Views on News from Equitymaster
 
 
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  • Jul 11, 2001

    Other income fuels UTI Bank's 1Q profits

    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) 1QFY01 1QFY02 Change
    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 Tax 212 859 304.7%
    Provisions & Contingencies 2 419 17345.8%
    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* 4.9 7.7  
    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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