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UTI Bank: Cleaning up its books - Views on News from Equitymaster
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  • Oct 20, 2003

    UTI Bank: Cleaning up its books

    UTI Bank has announced a strong performance in the September quarter as well as for 1HFY04, on the back of significant fall in interest expenses as well as strong growth in other income. The bank has reported an 8% YoY rise in topline with the bottomline growing by a significant 45% in the September quarter. The bank has also reported improvement in the quality of assets due to significant growth in NPA provisioning.

    (Rs m) 2QFY03 2QFY04 Change 1HFY03 1HFY04 Change
    Income from Operations 3,633 3,908 7.6% 6,952 7,847 12.9%
    Other Income 1,184 1,498 26.6% 1,782 3,001 68.4%
    Interest Expenses 2,960 2,560 -13.5% 5,705 5,297 -7.1%
    Net interest income 673 1,348 100.1% 1,247 2,550 104.4%
    Other Expenses 803 1,068 33.0% 1,407 1,885 34.0%
    Operating Profit (129) 280   (159) 665  
    Operating Profit Margin (%) -3.6% 7.2%   -2.3% 8.5%  
    Provisions and Contingencies 378 692 83.2% 370 1,610 335.6%
    Profit before Tax 676 1,086 60.5% 1,254 2,056 64.0%
    Tax 235 444 89.2% 452 893 97.4%
    Profit after Tax/(Loss) 442 642 45.3% 802 1,164 45.2%
    Net Profit Margin (%) 12.2% 16.4%   11.5% 14.8%  
    No. of Shares (m) 191.8 230.2   191.8 230.2  
    Diluted Earnings per share* 7.7 11.2   7.0 10.1  
    P/E Ratio         8.3  

    The main highlight of the bank's performance in the September quarter has been the fall in its interest expenses, which was mainly brought about by the strong fall in cost of deposits. Fall in interest expenses has brought about a significant rise in net interest income as well as a consequent rise in net interest margins. While the cost of deposits have fallen to 5.8% (7.9%), net interest margin has improved to 3% (1.8%). The fall in cost of deposits has been brought about mainly due to higher contribution of demand deposits. Demand deposits, especially savings and current deposits, have grown by a healthy 24% and now constitute 24% (16%) of total deposits.

    On the advances front, while overall advances have grown by 13% till September 30 2003, compared to the same period last year, the bank has reported a strong growth (100%) in its retail advances in the same period. Investments at the same time have grown by 21%. Strong other income growth has also aided the bottomline performance of the bank in the September quarter. While a large part of other income has been derived from profits from sale of investments, its contribution to total other income is reducing. However, we would like to point out that the contribution is still high and hence predictability of its effect on the bottomline is difficult. If profits from sale of investments dip going forward, it may restrict bottomline growth significantly. Core fee-based income has, however, shown improvement and has risen by 53% in the September quarter, on a YoY basis.

    Strong growth in provisioning has helped the bank to significantly bring down its NPA levels very close to current industry standards. Net NPA to advances ratio has fallen to 2% (2.5%) in the September quarter. The bank continues to grow its branch and ATM network in order to attract and retain a higher quantum of retail clients. While the branch network has grown to 206 (171), the ATM network has crossed the 1,000 figure mark.

    The stock is currently trading at Rs 84, a P/E ratio of 8x its annualised 1HFY04 earnings. The bank has reported strong results in the September quarter, as well as cleaned up its books considerably. Retail visibility is the key focus area like all other banks. However, high dependency of the bottomline on treasury profits is still a cause of concern.



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