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Excellent performance by private banks - Views on News from Equitymaster
 
 
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  • Nov 9, 2000

    Excellent performance by private banks

    The private banking sector has recorded an excellent financial performance during the second quarter ended September 2000. We have included four major private banks - HDFC Bank, ICICI Bank, Global Trust Bank (GTB) and UTI Bank in our sector summary.

    (Rs m) 2QFY00 2QFY01 Change
    Operating Income 5,883 10,033 70.6%
    Other Income 1,243 1,154 -7.1%
    Interest Expenses 4,566 7,233 58.4%
    Operating Profit (EBDIT) 1,317 2,801 112.7%
    Operating Profit Margin (%) 22.4% 27.9%  
    Other expenses 869 1,766 103.3%
    Depreciation 239 335 40.3%
    Profit before Tax 1,452 1,854 27.7%
    Tax 430 308 -28.3%
    Profit after Tax/(Loss) 835 1,298 55.3%
    Net profit margin (%) 14.2% 12.9%  
    Diluted number of shares 676.0 693.4  
    Diluted Earnings per share* 4.8 7.5  
    *(annualised) 29.6% 16.6%  

    The operating margins of the private sector banks improved sharply by 550 basis points to 27.9%. The increase was on the back of lower interest cost. However, substantial investment in infrastructure (ATMs and branch renovation) and e-initiatives (such as back office automation apart from Internet banking) taken by these banks during the quarter doubled the other expenses.

    Due to investments in preference shares and bonds, the tax payment has declined by 28%. The ratio of tax/profit before tax has come down to 17% (from 30% in 2QFY00). Also lower provision for depreciation in the value of investments as per RBI guidelines resulted in higher net profits.

    Interestingly, although the operating income of the private sector banks jumped 71%, other income dropped by 7%. These banks derive higher income from capital market investments and government securities. During the quarter the adverse capital market conditions led to the fall in the other income.

    The sector currently gets a valuation of 19 times its 2QFY01 annualised earnings. The future valuation of the sector depends on efficiently maintaining the volatile stream of revenues and generating higher returns from the amount invested in technology improvement.

    Comparative Valuations
    Particulars HDFC Bank ICICI Bank UTI Bank GTB
    Market Price (Rs) 243.0 125.0 39.5 90.6
    P/E (x) 30.0 20.5 6.8 8.7
    Price/Book value (x) 7.8 1.8 2.1 1.8

     

     

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