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Bank of Punjab: On the lookout - Views on News from Equitymaster
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  • Dec 13, 2000

    Bank of Punjab: On the lookout

    Bank of Punjab Ltd., a new private sector bank, is in the limelight over the past few days on the back of news of the proposed merger of ICICI Bank and Madura Bank. The bank, which has a strong presence in Punjab, Haryana, Rajasthan and Gujarat, is being touted as a possible takeover target.

    However, instead of being acquired by some large banks, the bank itself is planning to acquire a bank, which has a significant retail presence in the South or Eastern part of India. Currently, Bank of Punjab (BOP) has a customer base of 0.4 m and plans to raise the number to 1 m either through acquisition or through strategic tie-ups with regional players. The bank has a wide network of branches across the country (around 60 branches and ATM network of 50). It provides services like treasury management, forex advisory and leasing services.

    Financial Snapshot
    (Rs m) FY98 FY99 FY00 3 yrsCAGR
    Operating income 1,486 1,865 2,628 33.0%
    Total revenues 1,899 2,292 2,628 17.6%
    Operating profit 399 412 737 35.9%
    Provision & contingencies 20 69 187 206.6%
    Profit after tax 324 324 331 1.2%
    Number of shares (m) 105 105 105  

    Key Ratios
    Particulars FY98 FY99 FY00
    Operating margin 26.9% 22.1% 28.0%
    Net profit margin 21.8% 17.4% 12.6%
    Fully Diluted EPS (Rs) 3.1 3.1 3.2
    RONW 23.9% 21.4% 19.8%
    ROA 4.2% 3.5% 2.3%
    ROIC 2.9% 2.1% 1.9%

    From a deposit base of Rs 2.3 bn in the first year ended March 1996, deposits of BOP grew to Rs 25 bn in the year ended March 2000, (a CAGR of over 80% in the last 5 years). The bank has set a target of achieving a deposit base of Rs 100 bn by 2005 (a CAGR of 40% in the next 5 years) and to establish a strong presence in retail and corporate banking.

    The bank is positioning itself at the leading edge of technology and is coming out with various technology driven products and services for its customers. On the anvil are debit and credit cards, smart cards and online e-commerce. It is also planning to sell insurance and mutual fund products. The initiatives taken by the bank are expected to expand its customer base and add to topline growth in the future. But the bank will have to continuously monitor its non-performing assets ratio (2.3%), as in FY00 the provisions of the bank jumped by more than 170%.

    BOP has a capital adequacy ratio of 9.8%, which is marginally higher than the RBI stipulated 9%. The bank plans to raise the ratio by issuing subordinated debt of Rs 500 m in the last quarter of FY01. The bank has one of the highest dividend yield ratios of 9.6%. At the current market price of Rs 16, BOP gets a P/E multiple of 5 times and a Price/Book value ratio of 1 time. Currently the valuations of BOP are comparatively lower than new private sector banks HDFC Bank and ICICI Bank.

    Comparative Analysis
    Particulars Bank of
    Karur Vysya
    Market Price (Rs) 16 20 36 248
    PER (x) 4.9 2.2 1.5 2.1
    Dividend yield 9.6% 5.4% 9.7% 2.4%
    Price/Book value (x) 1.0 1.5 0.3 0.6
    CAR 9.8% 15.6% 18.8% 15.2%
    NPAs as a % of net advances 2.3% 2.7% 3.2% 3.8%
    Interest spread as a % of total assets 2.3% 1.5% 2.7% 3.7%



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