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IDBI: No improvement in 2Q

Nov 29, 2001

IDBI failed to maintain the zeal and declared a dismal growth of 7% in the second quarter profits before tax. In the June quarter the institution had reported 82% jump in profits before tax. Earnings of the institution declined by over 80% in the September quarter on the back of Rs 1.6 bn provision for non-performing assets (NPAs).

(Rs m)2QFY012QFY02Change
Income from Operations 19,173 18,986 -1.0%
Other Income 382 269 -29.6%
Interest Expanded 16,483 16,079 -2.5%
Operating Profit (EBDIT) 2,690 2,907 8.1%
Operating Profit Margin (%)14.0%15.3%
Other Expenses 737 737 0.0%
Depreciation 578 559 -3.3%
Profit before Tax1,757 1,880 7.0%
Tax110 -
Provisions & contingencies 1,629
Profit after Tax/(Loss) 1,647 251 -84.8%
Net profit margin (%)8.6%1.3%
Number of shares (eoy) 660 653
Diluted Earnings per share 10.1 1.5
P/E (at current price) 11.7

IDBI's interest margins which rose sharply to 26% in the first quarter, stood at just 15% in the second quarter. Sluggish industrial activity had taken a toll on its operating performance. Its other income too declined by 30% contrary to a sparkling rise seen by other financial entities. IDBI's other income to total income ratio at 1% is substantially low compared to other financial institutions.

The institution has however, reduced its cost to income ratio at 41% from 43% in the comparable previous quarter. Cost cutting is one of the immediate strategies of IDBI. It is also aiming to concentrate on diversification of its loan portfolio by foraying into housing finance and efficient management of NPAs.

At the current market price of Rs 18, IDBI is trading at a P/E of 2x (excluding provisions for NPAs) and Price/Book value ratio of 0.2x. IDBI's worsening financial performance and uncertainty about its plan to transform into a universal bank is impacting the stock's valuations.

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