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UTI Bank: Improving

Oct 23, 2001

UTI Bank has reported a spectacular rise in net profits in the September quarter driven by over 200% jump in other income. Surprisingly, the bank's operating margins have also gone up by about 420 basis points.

(Rs m)2QFY012QFY02Change1HFY011HFY02Change
Interest Income 2,106 2,741 30.2% 3,794 5,405 42.4%
Other Income 289 922 219.2% 586 1,931 229.3%
Interest Expenditure 1,892 2,345 24.0% 3,417 4,733 38.5%
Operating Profit (EBDIT) 214 396 84.8% 378 672 78.0%
Operating Profit Margin (%)10.2%14.4% 9.949%12.4% 
Other Expenditure 270 476 76.5% 518 903 74.1%
Profit before Tax233841260.8% 445 1,700 281.7%
Provisions & Contingencies63328422.3% 65.1 746 1046.2%
Tax (20) 204 -1100.5% 29 391 1270.5%
Profit after Tax/(Loss) 191 310 62.2% 352 563 60.1%
Net profit margin (%)9.1%11.3% 9.3%10.4% 
No. of Shares (eoy) 132 132   132 132  
Diluted Earnings per share*5.89.4  5.3 8.5  
P/E (at current price) 2.8   3.0  

The bank's other income growth was driven by strong treasury operations, which accounted for 36% of its PBT. Treasury operations of the bank have been broadened to include liquidity management, forex, money market and derivative trading. Other income accounted for 25% of total income as against 12% in 2QFY01.

During the quarter, the bank's interest income rose by 30%. This growth was however lower than the 58% rise recorded in 1QFY02. A slowdown in the industrial activity is taking toll on the bank's interest from advances.

UTI Bank's operating margins in the current quarter improved sharply, as the bank diversified its deposit portfolio. Saving account deposits witnessed a commendable rise of 71% in the first half of the current year, leading to lower cost of funds for the bank. The bank's investments in infrastructure (ATMs and technology) has contributed to this rise. On the asset side too, retail banking accounted for 17% of PBT. The proportion of retail assets is however low, which could affect the bank's asset quality in future (risk in corporate banking business is relatively high in a sluggish economic environment).

The bank's cost to income ratio has also come down to 36% from 54% in 2QFY01. However, its NPA provision has increased by over 5 times to Rs 328 m. In the first half of FY02, the amount has increased by 10 fold YoY. UTI Bank's NPA provision coverage ratio was just 20% in FY01. This was much below its peers in the industry. Increasing the provisioning amount in the current year, could move up the coverage ratio, provided gross NPAs do not rise substantially. Considering UTI Bank's higher exposure to corporate clients (47% of PBT), there are likely chances of gross NPAs moving in the upward direction going forward.

UTI Bank has recently placed 26% of its equity capital with CDC Financial Services (Mauritius) Ltd. to spur the capital adequacy ratio (CAR) which stood at 7.9% in 1QFY02. Although, this will dilute the banks equity capital by 36%, the injection of capital worth Rs 1.6 bn will support the banks future growth. The bank is also in the process of raising additional Tier II capital of upto Rs 1.5 bn. This would further increase its CAR.

At the current market price of Rs 26, UTI Bank is trading at PER of 2.8x 2QFY02 annualised earnings. The bank's Price/Book value ratio of 1x is in line with the other private sector banks.

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