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IDBI: Will it maintain the zeal?

Nov 27, 2001

IDBI had reported better than expected financial performance for the June quarter driven by improvement in interest margins and a substantial rise in other income. The institution also made provision for non-performing assets (NPAs) of Rs 2 bn. Detailed June quarter results Click here

IDBI is expected to declare its September quarter results in the current week. We have attempted to forecast the results based on the current economic environment and IDBI’s restructuring efforts. In the September quarter IDBI is expected to report a marginal 5% growth in topline due to a downturn in the economic and industrial activity. IDBI’s interest margins are however, expected to rise on the back of its debt-restructuring program. In the wake of softer interest rate scenario, the institution would retire 16% Flexibonds 1992 issue and raise fresh funds at lower costs. This exercise is likely to push up its interest margins further towards the year-end.

Financial snapshot
Rs m 2QFY01 2QFY02E Change
Interest Income 19,173 20,132 5.0%
Other Income 382 362 -5.1%
Total Income 19,555 20,494 4.8%
Interest Expenses 16,483 16,709 1.4%
Operating Profit 3,072 3,785 23.2%
Other Expenses 737 870 18.1%
Depreciation 578 604 4.5%
Profits Before Tax 1,757 2,310 31.5%
Tax 110 51 -53.8%
Provisions & Contingencies - 1,356  
Net Profit 1,647 904 -45.1%
No. of shares (m) 659.5 652.3  

Key ratios
Particulars 2QFY01 2QFY02E
OPM (excl. other income) 14.0% 17.0%
Cost to income ratio 42.8% 39.0%
Tax / PBT 6.3% 2.2%
NPM 8.4% 4.5%
EPS (Rs) 10.0 5.5

IDBI is expected to make higher provision in the September quarter to improve its NPA coverage ratio. The institution had not made any provision for NPAs in FY01. Consequently, cumulative provisions as a percentage of gross NPAs were just 23% as on March 2001. The ratio is much lower as compared to 50% for ICICI. By providing higher amount in the current year, the ratio could move up to about 27%. IDBI is also concentrating on short term lending to improve its asset quality. This is reflected from a 23% growth in non-project finance disbursements in FY01 and a fall of 18% in project finance disbursements.

At the current market price of Rs 18 IDBI is trading at a P/E of 2x and Price/Book value ratio of 0.2x first half (projected) annualized earnings. IDBI’s plan to become universal bank is driving up the stock price. This is due to the fact that its banking subsidiary has comparatively better financials and assets. Till now however, IDBI Bank has seemed reluctant to commit to this reverse merger plan of its parent.`

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