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IDBI: Volatility persists

Oct 30, 2002

Industrial Development Bank of India (IDBI) is experiencing considerable volatility in Income from operations, which is affecting quarterly results. The financials, QoQ, have shown sharp improvement. September '02 quarter numbers, YoY, are a mirror image of the performance in the first quarter. On the other hand, interest expense has shown steady a decline.

(Rs m)2QFY022QFY03Change1HFY021HFY03Change
Income from Operations 18,990 20,350 7.2% 40,560 37,000 -8.8%
Other Income 270 350 29.6% 710 540 -23.9%
Interest Expenses 16,080 14,840 -7.7% 32,110 29,270 -8.8%
Net interest income 2,910 5,510 89.3% 8,450 7,730 -8.5%
Other Expenses 740 790 6.8% 1,590 1,390 -12.6%
Operating Profit 2,170 4,720 117.5% 6,860 6,340 -7.6%
Operating Profit Margin (%)11.4%23.2%16.9%17.1%
Provisions and Contingencies 1,630 3,410 109.2% 4,270 4,3902.8%
Depreciation 560 520 -7.1% 1,130 1,030-8.8%
Profit before Tax 250 1,140 356.0% 2,170 1,460 -32.7%
Tax - (15) 100 (60)-160.0%
Profit after Tax/(Loss) 250 1,155 362.0% 2,070 1,520 -26.6%
Net Profit Margin (%)1.3%5.7%5.1%4.1%
No. of Shares (m) 653.0 653.0 653.0 653.0
Diluted Earnings per share*1.57.16.34.7
P/E ratio3.8
*(annualised)

For the six months ended September '02, disbursements have outpaced sanctions, which could indicate a concerted effort by the institution to bridge the gap between the two books. The numbers could also indicate a slowdown in fresh applications for loans -- in line with industrial economy performance. Incremental advances seem to be directed towards the infrastructure sector. Over the past 18 months there has been a downward bias to interest rates. Consequently, IDBI seems to have benefited from the interest rate environment. Cost of incremental borrowings for 1HFY03 was lower by 113 basis points YoY to 8.9%.

Considering the volatility in financials, operating margins for the half year ended September '02 are a better indicator of operating performance. With Indian businesses focusing on efficiency, IDBI has made efforts to keep other expenses under check, which has offered support to margins. Making up for the previous quarter -- provisions were lower by 63% YoY -- and considering the strong operating profits, provisions towards non-performing assets have increased considerably.

At the current market price of Rs 18, IDBI is trading at a P/E of 3.8x 1HFY03 annualised earnings. The institution's net NPAs are more than its networth. Consequently, its book value of Rs 102 would actually reduce to nil, if one were to adjust the entire net NPAs from its reserves.

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