X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
IDBI Bank: Growth in limbo - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Nov 1, 2002

    IDBI Bank: Growth in limbo

    Lack of capital continues to have a big impact on IDBI Bank's growth prospects. While revenues have grown at a brisk rate, operating margins have suffered significantly on the back of ongoing expansion of network of the bank. Revenues have failed to rise commensurately with the rise in operating expenses, which has affected the bank's performance at the operating level.

    (Rs m) 2QFY02 2QFY03 Change 1HFY02 1HFY03 Change
    Income from operations 1,290 1,453 12.6% 2,496 2,857 14.5%
    Other Income 226 314 38.8% 675 628 -6.9%
    Interest expense 849 1,001 17.8% 1,768 1,957 10.7%
    Net interest income 441 452 2.6% 728 899 23.5%
    Other expenses 318 483 51.7% 591 930 57.4%
    Operating Profit 123 (30) - 137 (30) -
    Operating Profit Margin (%) 9.5% -2.1%   5.5% -1.1%  
    Provisions and contingencies 142 51 -64.1% 302 189 -37.4%
    Profit before Tax 207 233 12.3% 511 409 -19.9%
    Tax 60 72 19.8% 181 137 -24.4%
    Profit after Tax/(Loss) 147 161 9.2% 330 272 -17.4%
    Net profit margin (%) 11.4% 11.1%   13.2% 9.5%  
    No. of Shares (m) 140.0 140.0   140.0 140.0  
    Diluted Earnings per share* 4.2 4.6   4.7 3.9  
    P/E (x)         5.1  
    *(annualised)            

    Advances have increased at an impressive rate of 49% in 2QFY03 primarily due to higher contribution from retail assets in the form of higher disbursement towards housing loans. If one were to look at the gross segmental break-up, retail segment contributed to 25% of total revenues in 2QFY03 (24% for 1HFY03). IDBI Bank's home loan portfolio has crossed Rs 3.5 bn which translates into a 350% growth on YoY basis. Since spreads are higher in retail assets, banks have been focusing on increasing contribution from this particular segment. With interest rates expected to soften further in the near term, retail loan portfolio is expected to increase sharply. IDBI Bank has targeted atleast 5% of incremental disbursements from housing loans.

    IDBI Bank's average cost of funds has been on the decline in the last few quarters. In 2QFY03, the bank has managed to bring down costs even further to 6.2%, which is one of the lowest in the sector. Cost of deposits have fallen on various counts. While total deposits of the bank grew at a stellar rate of 50% to Rs 59 bn in the last one year, the share of low-cost deposits (i.e. current and saving accounts) has touched 26%. The bank is also increased its cash management business and as a result current account deposits touched Rs 8.4 bn (82% YoY growth) thus lowering the average cost of deposits. But contribution from such deposits is still lower when compared with other banks like UTI Bank and SBI. One has also got to keep in mind that growth in deposits is on the higher side when compared with other private sector banks, as it is only in the last one and half years that IDBI Bank has been aggressive at the retail end. Going forward, as the bank expands its presence in the retail segment (depending on availability of capital), we expect deposit mix to shift more in favour of the bank. The bank expects cost of deposits to remain in the range of 6%-6.5%.

    Interest income break-up...
    (Rs m) 1QFY02 1QFY03 Change
    Interest on advances 615 913 48.6%
    Income on investments 608 500 -17.7%
    Interest on balances with the RBI 23 19 -19.5%
    Others 45 21 -52.8%
    Total 1,290 1,453 12.6%

    The decline in operating margins is due to a sharp spurt in cost to income ratio both in 2QFY03 and 1HFY03. The ratio in 2QFY03 and 1HFY03 stood at 63% and 61% respectively against 54% in FY02. The ratio is adversely impacted due to lower other income and a less than commensurate rise in revenues in relation to higher operating expenses (towards expanding infrastructure and distribution). IDBI Bank’s distribution now extends to 63 cities, spread across 90 outlets and 252 ATMs. IDBI Bank's growth strategy revolves around expanding presence in Tier-II cities. The bank increased its presence in 10 cities during 1HFY03.

    The bank's Net NPAs to customer assets stand at 1.5% with provision cover at 63%, which is commendable. While the performance of the bank in 2QFY03 has to be viewed in light of inadequate capital, woes continue unabated. Capital adequacy ratio stands at 9% in 1HFY03 that offers no room for growth in the near term. The bank, in its press release, has stated that "Despite definitive commitments from world-class private equity players, lack of clarity on promoter related issues is holding back IDBI Bank’s capital infusion plans. With timely availability of capital, IDBI Bank would have been able to enhance the value of its franchise and enhance return on its investments even faster. We expect that delay in capital infusion is likely to impact earnings over the next two quarters".

    At the current market price of Rs 20, IDBI Bank is trading at a P/E of 5x 1HFY03 annualised earnings and adjusted price to book value ratio of 1.4x (based on book value for FY02). As mentioned above, uncertainty over IDBI's stake dilution and lack of capital will continue to have negative impact on the stock price in the near-term.

     

     

    Equitymaster requests your view! Post a comment on "IDBI Bank: Growth in limbo". Click here!

      
     

    More Views on News

    IDFC Bank: Strong Trading Income Shields Credit Slowdown (Quarterly Results Update - Detailed)

    Aug 10, 2017

    IDFC Bank is taking steps to address contracting NIMs and successfully transition in to a retail bank.

    ICICI Bank: Loan Slippages Trending Downwards (Quarterly Results Update - Detailed)

    Aug 10, 2017

    Asset quality will be the key thing to watch out for going forward.

    Axis Bank: Outside Watchlist Slippages a Big Worry (Quarterly Results Update - Detailed)

    Jul 31, 2017

    Almost 74% of the watchlist as provided by the bank of Rs 226 billion in FY16 has turned into non-performing assets.

    HDFC Bank: Asset Quality Deteriorates due to Farm Loan Waiver (Quarterly Results Update - Detailed)

    Jul 25, 2017

    Asset quality was under pressure on account of farm loan waivers. Despite the higher provisioning, the company reported a healthy profit growth of 20%.

    SBI: Merger Pushes up Bad Loans (Quarterly Results Update - Detailed)

    May 23, 2017

    State Bank of India (SBI) ended FY17 on a healthy note but concerns on bad loans from associate banks remain.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    TRACK IDBI

    MARKET STATS