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Karur Vysya: No improvements

Nov 20, 2001

The financials of Karur Vysya Bank (KVB) continued to bleed during the second quarter of the year. While the bank's interest income declined by 7%, net profits witnessed a marginal growth of 7% largely led by lower provision for non-performing assets (NPAs) and higher other income.

(Rs m) 2QFY01 2QFY02 Change 1HFY01 1HFY02 Change
Interest Income 1,189 1,109 -6.7% 2,297 2,276 -0.9%
Other Income 41 179 343.0% 142 369 159.5%
Interest Expenditure 737 778 5.6% 1,480 1,576 6.5%
Operating Profit (EBDIT) 452 331 -26.8% 817 700 -14.3%
Operating Profit Margin (%) 38.0% 29.8%   35.6% 30.7%  
Other Expenditure 206 221 7.2% 401 440 9.9%
Profit before Tax 287 289 1.0% 558 629 12.7%
Provisions & Contingencies 156 21 -86.9% 177 94 -46.8%
Tax (21) 107   38 177 361.7%
Profit after Tax/(Loss) 151 162 6.9% 342 357 4.3%
Net profit margin (%) 12.7% 14.6%   14.9% 15.7%  
No. of Shares (eoy) 6 6   6 6  
Diluted Earnings per share* 101 108   114 119  
P/E (at current price)   2     2  

While investment income of the bank declined by 7%, interest on advances remained flat during the first half of FY02. Profit growth was largely stimulated by a triple digit growth in other income, which contributed 14% to total income from a mere 6% in 1HFY01. In view of the softer interest rate regime and unabated pressures on margins, the bank has indicated its plans to concentrate more on retail business and housing sector. It will also initiate efforts to increase the level of fee based income.

The bank's interest margins plunged in 2QFY02 by over 800 basis points, which led to a dismal financial performance in the first half of the year. Its cost to income ratio at 43% too increased marginally due to higher salary cost. KVB's tax provision increased sharply following the adoption of AS-22 for deferred taxation. These all around rise in costs pressurized the bank's bottomline.

KVB has projected to achieve a growth rate of 11% in deposits and about 15% in advances in FY02. The target is set considering the declining credit offtake in the industry and could be achieved comfortably. The bank's capital adequacy ratio of 16% is likely to supplement its future growth rates. The bank's technology upgradation plans are however, moving at a slow pace. It has computerized 85% of its business and expects the ratio to increase to 95% by the end of current fiscal. It is yet to launch Internet banking and ATMs across the country.

At the current market price of Rs 226, KVB is trading at a P/E multiple of 2x and Price/Book value ratio of 0.4x its 1HFY02 annualised earnings. The bank's subdued valuations are the result of its dwindling financial performance, regional nature (south India based bank) and a lack of new generation banking technologies.

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