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IDBI: Improvement in performance - Views on News from Equitymaster
 
 
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  • Jul 30, 2001

    IDBI: Improvement in performance

    IDBI has reported a stunner performance for the June quarter of FY02. Its operating profits jumped by 66% thanks to a substantial rise in operating margins. However, net profit growth was stemmed by increase in other expenses and provision for contingencies.

    (Rs m) 1QFY01 1QFY02 Change
    Income from Operations 19,865 21,575 8.6%
    Other Income 275 443 61.1%
    Interest Expanded 16,527 16,029 -3.0%
    Operating Profit (EBDIT) 3,338 5,546 66.1%
    Operating Profit Margin (%) 16.8% 25.7%  
    Other Expenses 550 857 55.8%
    Depreciation 557 573 2.9%
    Profit before Tax 2,506 4,559 81.9%
    Tax 270 100 -63.0%
    Provisions & contingencies - 2,640  
    Profit after Tax/(Loss) 2,236 1,819 -18.6%
    Net profit margin (%) 11.3% 8.4%  
    Number of shares (eoy) 660 652  
    Diluted Earnings per share 3.4 2.8  
    P/E (at current price)   7.5  

    For the first time in the past two years, IDBI's operating margins were above 20%. This could be attributed to the repayment of high cost debt and raising fresh funds at substantially lower interest rates. However, considering the high liquidity in the system and increasing competition, margins could witness increasing pressure and are unlikely to sustain at the current level.

    Other income of IDBI increased by 61% on account of capital gain of Rs 1 bn on sale of 50 m shares of SIDBI. With this sale transaction, IDBI has divested its 51% stake in SIDBI (in 4QFY01, IDBI had already booked capital gain of Rs 3.6 bn with respect of 180 m shares).

    Other expenses of the institution were higher by 56% on account of 135% rise in staff cost. The increase in staff cost was mainly due to upward revision in salary with effect from November 1997. However, IDBI's cost to income ratio declined to 14.3% from 15.2% in 1QFY00.

    During the quarter, IDBI made provisions of Rs 2.6 bn on non-performing assets. The institution had not made any provision for NPAs in FY01 accounts. Increasing the provision coverage would help IDBI in cleaning up the accounts.

    At the current market price of Rs 21 IDBI is trading at a P/E of 8x its 1QFY02 annualised earnings. Its Price/Book value ratio of 0.2x is indicative of its deteriorating financial health. Also, the institution's investment (direct or through loans) in K-10 companies has affected its image and consequently valuations.

     

     

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