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- Dec 26, 2001 - Federal Bank: Turnaround in first half
Federal Bank: Turnaround in first half
Federal Bank, one of the largest old private sector banks, reported a sharp improvement in overall financial performance during the first half of the current fiscal. The bank's profits before tax doubled due to a rise in interest margins and a triple digit growth in other income.
| (Rs m) | 2QFY01 | 2QFY02 | Change | 1HFY01 | 1HFY02 | Change |
| Interest Income | 2,205 | 2,639 | 19.7% | 4,402 | 5,118 | 16.3% |
| Other Income | 266 | 447 | 68.3% | 537 | 1,076 | 100.6% |
| Interest Expenditure | 1,673 | 1,906 | 13.9% | 3,313 | 3,730 | 12.6% |
| Operating Profit (EBDIT) | 532 | 734 | 37.8% | 1,089 | 1,388 | 27.5% |
| Operating Profit Margin (%) | 24.1% | 27.8% | 24.7% | 27.1% | ||
| Other Expenditure | 435 | 454 | 4.5% | 859 | 932 | 8.5% |
| Profit before Tax | 364 | 727 | 99.9% | 766 | 1,532 | 100.0% |
| Provisions & contingencies | 210 | 423 | 101.7% | 412 | 811 | 96.8% |
| Tax | - | 110 | - | 60 | 300 | 400.5% |
| Profit after Tax/(Loss) | 154 | 194 | 25.7% | 294 | 421 | 43.2% |
| Net profit margin (%) | 7.0% | 7.3% | 6.7% | 8.2% | ||
| No. of Shares (eoy) | 21.7 | 21.7 | 21.7 | 21.7 | ||
| Diluted Earnings per share* | 28.3 | 35.6 | 27.1 | 38.8 | ||
| P/E (at current price) | 1.2 | 0.5 | ||||
| *(annualised) |
The bank's revenues from core business of lending increased by 18% in the first half of the year. Federal Bank's efforts to focus on the retail market led by IT initiatives helped it fuel interest income. Interest income on advances accounted for 63% of total operating income. During the fourth quarter of the last fiscal, the bank's interest income was up by marginal 4%. The bank is adequately geared in terms of capital (CAR of 10.8%). This would help it in future business expansions.
| (Rs m) | 2QFY01 | 2QFY02 | Change | 1HFY01 | 1HFY02 | Change |
| Interest on advances | 1,321 | 1,637 | 24.0% | 2,696 | 3,185 | 18.1% |
| Income from investments | 865 | 975 | 12.7% | 1,665 | 1,873 | 12.5% |
| Interest on balance with RBI | 20 | 27 | 37.4% | 33 | 58 | 73.7% |
| Others | - | 0 | - | 7 | 2 | -77.0% |
| Total | 2,205 | 2,639 | 19.7% | 4,402 | 5,118 | 16.3% |
Lower cost of borrowings resulted in about 240 basis points rise in interest margins in 1HFY02. A sharp reduction in cost to income ratio to 38% in 1HFY02 from 53% in the comparable previous period was another achievement. This helped the bank to double its profits before tax. However, a similar rise in provisions and contingencies figure and higher provision for tax (deferred tax provision according to Accounting Standard 22) trimmed bottomline growth of the bank.
At the current market price of Rs 42 Federal Bank is trading at a P/E of 1x its 1HFY02 annualised earnings and Price/Book value ratio of 0.2x. The bank's lower valuations are due to its higher net NPA to advances ratio, which stood at 10.1% as on March 2001. Also, its a regional bank with most branches located in Kerala.
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