X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
FIs: NPAs trim earnings growth - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Aug 23, 2001

    FIs: NPAs trim earnings growth

    Financial Institutions (FIs) reported subdued performance for the year ended March '01. While income from operations witnessed a marginal growth of 5%, profits declined by a huge 51% due to a substantial rise in provisioning amount. Excluding this, profits were up by a marginal 1%. We have included three major FIs, ICICI, IDBI and IFCI in our sector study.

    (Rs m) FY00 FY01 Change
    Income from Operations 183,505 192,172 4.7%
    Other Income 5,529 3,450 -37.6%
    Interest & Depreciation 155,480 162,549 4.5%
    Operating Profit (EBDIT) 28,025 29,623 5.7%
    Operating Profit Margin (%) 15.3% 15.4%  
    Other Expenses 6,435 6,933 7.7%
    Profit before Tax 27,118 26,140 -3.6%
    Provisions and write offs 8,426 19,169 127.5%
    Other adjustments 2,940 3,440 17.0%
    Tax 2,020 870 -56.9%
    Profit after Tax/(Loss) 19,612 9,541 -51.4%
    Profits excld. provs. and adjsts. 25,098 25,270 0.7%
    Net profit margin (%) 10.7% 5.0%  
    Number of shares (eoy) 2,084 2,076  
    Diluted Earnings per share 9.4 4.6  
    P/E (at current price)   5.9  

    Operating margins of the sector remained at about 15% in FY01. As a result operating profit was up by 6%. However, in the first quarter of FY02, ICICI and IDBI reported sharp rise in operating profits due to double digit growth in topline (IFCI's results are not yet declared). With falling interest rates most of these institutions are restructuring their debts by raising low cost funds and repaying debts having higher interest rates.

    Cost to income ratio of the sector witnessed a marginal rise to 21% from 19.2% in FY00. The ratio is relatively high in case of IDBI and IFCI in the range of 25% while for ICICI it is 17%. In FY01, FIs have invested in improving the tech infrastructure and in promotional expenses to market their financial products.

    Over 127% jump in provisioning amount trimmed profit growth of the sector. Among the FIs only ICICI has provisioning coverage of over 50%, while for IDBI and IFCI it is just about 20%. In FY01, ICICI made accelerated provision of Rs 8 bn to bring down the level of NPAs to 5.2%. For IFCI and IDBI the net NPA ratio is still over 10%.

    The sector has high exposure to steel, textiles and chemical industry loans. In the current downtrend in industrial production, the performance of these sectors is subdued. This is likely to pressurize their profits growth, in turn adversely affecting cashflow which would lead to a likely default in loan repayment. As a result in the current year too, FIs might have to make higher provisions for non-performing assets.

    The sector currently gets a valuation of 6x FY01 net earnings. The Price/Book value ratio of the sector is below 1. Institutions including IDBI and IFCI have yet to initiate measures to clean-up their accounts by making adequate provisions for NPAs. The valuations of the sector are likely to remain under pressure in the current weak economic scenario.

     

     

    Equitymaster requests your view! Post a comment on "FIs: NPAs trim earnings growth". Click here!

      
     

    More Views on News

    Insider at It Again. This Time Stealing from Buffett and Berkshire (The 5 Minute Wrapup)

    Aug 12, 2017

    What is Equitymaster Insider Ankit Shah stealing from Berkshire's success?

    HDFC: Red Flag in Developer Loans (Quarterly Results Update - Detailed)

    Aug 10, 2017

    HDFC starts FY18 on robust loan growth but asset quality slips on increased exposure to developer loans.

    Shriram Trans Fin: FY17 Ends on a Tepid Note due to Regulatory Headwinds (Quarterly Results Update - Detailed)

    Jun 22, 2017

    Demonetisation led slowdown coupled with shift to stringent bad loan norms keep Shriram Transport Finance on a slow wicket.

    Central Depository Services (India) Ltd. (IPO)

    Jun 19, 2017

    Should one subscribe to the IPO of CDSL Ltd?

    Power Finance Corp: Alignment with RBI Norms Knocks Down FY17 Earnings (Quarterly Results Update - Detailed)

    Jun 14, 2017

    Power Finance Corporation earnings hit by RBI mandated higher provision on state government power generation projects where the recovery continues to be 100%.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

    Aug 4, 2017

    The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    5-YR ANALYSIS

    COMPARE COMPANY

    MARKET STATS