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Industrial slowdown hits IDBI - Views on News from Equitymaster
 
 
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  • Nov 1, 2000

    Industrial slowdown hits IDBI

    The slowdown in the economy had impacted the income and profitability of IDBI during the 2QFY01. The bank's operating margins and profits declined sharply. The decline in net profit was also due to lower capital gains on sale of investments (Rs 40 m in 1HFY01 as against Rs 800 m during 1HFY99) because of depressed state of capital market.

    (Rs m) 2QFY00 2QFY01 Change
    Operating Income 19,241 19,173 -0.4%
    Other Income 438 382 -12.8%
    Interest Expenses 15,844 16,483 4.0%
    Operating Profit (EBDIT) 3,397 2,690 -20.8%
    Operating Profit Margin (%) 17.7% 14.0%  
    Other expenses 715 737 3.1%
    Depreciation 519 578 11.4%
    Profit before Tax 2,601 1,757 -32.4%
    Tax 550 110 -80.0%
    Profit after Tax/(Loss) 2,051 1,647 -19.7%
    Net profit margin (%) 10.7% 8.6%  
    No. of Shares (eoy) (m) 659.50 408.00  
    Diluted Earnings per share* 20.1 16.1  
    P/E (at current price) 2 2  
    *(annualised)      

    Assistance sanctioned under all products by IDBI during 1HFY01 aggregated to Rs 148 bn (higher by 5.3%) and disbursements during the period increased by 5.6% to Rs 79 bn. This is a reflection on the conditions prevailing in the industrial sector. Sanctions and disbursements, which had increased by over 47% during the first quarter of the year, could not sustain the tempo of growth during the second quarter, due to lack of demand for funds.

    Slowdown in the industrial sector has adversely affected the profits of the bank. The Index of Industrial Production (IIP) rose by 5.3% during April-August 2000 as compared with 6.2% during the corresponding previous period. The lower growth was mainly due to decline in the growth of manufacturing sector to 5.6% during April-August 2000 (from 6.8% recorded in April-August 1999).

    At the current market price of Rs 33 IDBI is trading at a P/E multiple of 2 times its 2QFY01 annualised earnings with a Price/Book value ratio of just 0.2 times. The bank has comparatively lower valuations than its peers (ICICI and HDFC), due to concern over quality of its assets and inability to sustain the growth by venturing into new areas.

     

     

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