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Vysya Bank: Operating loss widens - Views on News from Equitymaster
 
 
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  • Aug 21, 2002

    Vysya Bank: Operating loss widens

    Vysya Bank has reported dismal performance again with 8% drop in interest income and higher operating loss of Rs 301 m. The bank's net profits however, rose by over 10% due to higher other income and a 41% drop in provisions for non-performing assets.

    (Rs m) 1QFY02 1QFY03 Change FY01 FY02 Change
    Income from operations 2,357 2,177 -7.6% 8,893 9,226 3.7%
    Other Income 746 807 8.2% 1,239 2,813 127.2%
    Interest expense 2,030 1,814 -10.7% 7,160 7,404 3.4%
    Net interest income 327 364 11.3% 1,733 1,822 5.1%
    Other expenses 539 664 23.3% 1,828 2,591 41.7%
    Operating Profit (212) (301) 41.7% (95) (769) 707.7%
    Operating Profit Margin (%) -9.0% -13.8%   -1.1% -8.3%  
    Provisions and contingencies 263 154 -41.4% 657 1,104 68.1%
    Profit before Tax 271 352 30.0% 486 940 93.3%
    Tax 70 129 84.7% 101 253 150.0%
    Profit after Tax/(Loss) 201 223 10.9% 385 688 78.5%
    Net profit margin (%) 8.5% 10.2%   4.3% 7.5%  
    No. of Shares (m) 22.6 22.6   22.6 22.6  
    Diluted Earnings per share* 35.5 39.4   17.0 30.4  
    P/E Ratio   7.0     9.1  
    *(annualised)            

    After having witnessed a 1% decline in FY02, the bank's core interest income from advances fell sharply by 7%. Income from investments also grew in a single digit by 7% due to decline in yields over the last one year. On the other hand, the bank's fee based income rose at a comparatively better rate of 8%, forming 27% of total income (from 24% in 1QFY02). With increasing competition, it would be a challenging task for the bank to generate higher fee based income, considering its relatively small size and level of technology integration.

    Income breakup
    (Rs m) 1QFY02 1QFY03 Change FY01 FY02 Change
    Interest on advances 1,248 1,165 -6.6% 4,563 4,497 -1.4%
    Income from investments 809 865 6.9% 3,258 3,590 10.2%
    Interest on balance with RBI 275 122 -55.5% 994 1,062 6.9%
    Others 26 25 -2.0% 79 76 -3.4%
    Total 2,357 2,177 -7.6% 8,893 9,226 3.7%

    Higher operating expenses, on account of 49% increase in staff cost, pushed up the bank's cost to income ratio to 57% from 50% in 1QFY02. The bank's cost to income ratio is one of the highest in the banking sector. Staff cost of the bank increased, as the bank provided over Rs 90 m towards VRS write off in the June quarter. Vysya Bank launched VRS in February 2002 and has managed to reduce its employee strength by around 15%. The move to reduce the workforce was in line with ING's plan to reduce excess flab, ahead of its formal acquisition.

    Among other developments, the bank's foreign partner, ING has been allowed by the FIPB (foreign investment promotion board) to raise its stake in the bank, provided the 49% sectoral cap on foreign direct investment (FDI) for the banking sector is not breached. ING group has already stepped up its holding in the bank to 44%, by acquiring 5% stake from IFC (International Finance Corp.). ING aims to increase the stake further to 49%.

    At the current market price of Rs 276, Vysya Bank is trading at a P/E of 7x, 1QFY03 annualised earnings and Price/Book value ratio of 1.2x. The bank is geared well in terms of capital with capital adequacy ratio (CAR) of 11.4% as on 1QFY03. This will facilitate the bank's business expansion plans. The stock however, looks priced, compared to its peers considering its business growth, financial performance, regional nature and quality of assets.

     

     

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