UTI Bank: On an uneven keel - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

UTI Bank: On an uneven keel

Sep 11, 2001

UTI Bank’s stock has under-performed the Sensex since the beginning of 2001. While the BSE Sensex is off by 19%, the stock price of UTI Bank has come down by 39%. Failed merger talks, sliding operating margins and low capital adequacy ratio has hit the valuations of the bank. The bank reported over 50% growth in both interest income and net profits for the first quarter ended June ’01. Although its operating margins improved by 70 basis points to 10.4%, they are among the lowest in the banking sector. During the quarter, UTI Bank increased the provisions for non-performing assets (NPAs) to Rs 419 m from Rs 2 m in 1QFY01. This could be considered as its initiative to increase the provision coverage ratio, which stood at just 20% in FY01 when the bank had provided Rs 284 m as provision for NPAs.

UTI Bank seems to be on the right track to clean up its accounts. However, its high cost of funds is still a concern. Saving and current account deposits, which are considered low cost funds, accounted for just 15% of the bank’s total deposits outstanding as on FY01. This ratio is much below the average 25% for other private sector banks. Apart from this, the bank’s lower capital adequacy ratio (CAR) is also hindering the business growth (7.9% in 1QFY02). The ratio is below the 9% stipulated by the RBI. This has adversely affected the bank’s business growth in 1QFY02. Total advances of UTI Bank declined by 17% to Rs 40 bn from Rs 48 bn in FY01.

To shore up the CAR, UTI Bank aims to raise additional Tier-I equity capital through preferential allotment of shares. It is already in talks with a few foreign private equity investors to place 20% of equity capital. However, considering the sluggish market conditions, the bank is unlikely to get premium for its stock. Also, as per the recent SEBI guidelines banks are required to disclose their CAR along with the half yearly results. If the bank fails to raise the capital in the near term, its interest income growth is likely to be affected in the current year. This would also depress the valuations of the stock.

Ratio analysis
ParticularsFY98FY99FY00FY01
Capital Adequacy Ratio (CAR) 9.7%11.6%11.4%9.0%
NPA as a % of advances5.6%6.3%4.5%3.4%
Revenues/employee (Rs m) 6.2 7.0 6.5 7.5
Profits/employee (Rs m) 0.4 0.6 0.7 0.7
Net profit margin/employee6.5%8.3%10.5%9.7%
Deposits/employee (Rs m) 66.3 57.3 77.4 76.7
Deposits/branch (Rs m) 1,092.2 868.8 1,167.3 1,057.2

At the current market price of Rs 28 UTI Bank is trading at a P/E of 3.5x and Price/Book value ratio of 1x FY02 projected earnings. After the 20% equity dilution of the bank, the bank’s valuations would be on a higher side at 4.2x P/E and Price/Book value ratio of 1.2x. Although, these are still lower than ICICI Bank and HDFC Bank, the ability of the bank to improve the quality of its financials would determine its future valuations.

Equitymaster requests your view! Post a comment on "UTI Bank: On an uneven keel". Click here!

  

More Views on News

AXIS BANK Announces Quarterly Results (3QFY21); Net Profit Down 36.4% (Quarterly Result Update)

Jan 28, 2021 | Updated on Jan 28, 2021

For the quarter ended December 2020, AXIS BANK has posted a net profit of Rs 11 bn (down 36.4% YoY). Sales on the other hand came in at Rs 155 bn (down 1.3% YoY). Read on for a complete analysis of AXIS BANK's quarterly results.

AXIS BANK Announces Quarterly Results (1QFY21); Net Profit Down 18.8% (Quarterly Result Update)

Jul 30, 2020 | Updated on Jul 30, 2020

For the quarter ended June 2020, AXIS BANK has posted a net profit of Rs 11 bn (down 18.8% YoY). Sales on the other hand came in at Rs 165 bn (up 8.4% YoY). Read on for a complete analysis of AXIS BANK's quarterly results.

How the YES Bank Collapse Unfolded - 10 Points (Sector Info)

Mar 9, 2020

A timeline of how YES Bank went from a stock market darling to a pariah.

Today's Stock Market Crash: 10 Points (Sector Info)

Mar 6, 2020

Top factors that dragged the markets lower today.

More Views on News

Most Popular

A Critical Update on the Market (Fast Profits Daily)

Mar 30, 2021

In this video, I'll tell you why I am recommending caution in the market at this time.

My Recent Recommendation Will Profit from the Global Supply Chain Crisis (Profit Hunter)

Mar 31, 2021

A tiny chemical company, started in the Licence Raj era, is a great example of a new wealth creating opportunity.

My Stock Trading Strategy (Fast Profits Daily)

Mar 31, 2021

In this video I'll show you exactly how I go about picking stocks for trading.

What You Need to Find Hundred Baggers (Profit Hunter)

Mar 30, 2021

100 baggers of the last decade share this common trait. Here's how to use it to nail future multibaggers.

More

India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms

AXIS BANK SHARE PRICE


Apr 12, 2021 (Close)

TRACK AXIS BANK

  • Track your investment in AXIS BANK with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks

COMPARE AXIS BANK WITH

MARKET STATS