• JULY 2, 2001

Competition hits KMFL's FY01 profits

Kotak Mahindra Finance Limited (KMFL) has clocked a 19% drop in FY01 profits on the back of a 23% decline in income from operations. Subdued topline growth indicates strong competition from banking companies and financial institutions, which have also entered into car financing and personal finance segments.

(Rs m)FY00FY01Change
Income from operations 2,351 1,813 -22.9%
Other income 463 623 34.6%
Financial expenses 1,406 1,096 -22.1%
Operating Profit (EBDIT) 946 717 -24.1%
Operating Profit Margin (%)40.2%39.6% 
Operating expenses 364 432 18.5%
Profit before tax1,044908-13.0%
Provision & write off13877-44.0%
Tax 295 335 13.6%
Profit after Tax/(Loss) 611 496 -18.8%
Net profit margin (%)26.0%27.4% 
No. of Shares (eoy) (m) 45.9 59.2  
Diluted Earnings per share 10.3 8.4  
P/E (at current price)  6  

The company's other income from non banking finance subsidiaries, however jumped by 35%. Its subsidiaries in capital market and in auto finance seem to have performed well during the year.

During the year, KMFL has undertaken several new initiatives. It has forayed in the insurance business in a joint venture with OM Mutual, UK, entered into the securities brokerage business (through Kotak Securities) and forex brokerage business (through Kotak Forex Brokerage Ltd.). KMFL has also applied to the RBI for a banking licence. The company will leverage on its existing customer base (150,000) to offer all its current products through this banking subsidiary. Going forward, its subsidiaries are expected to contribute a major proportion to its revenue base.

Remarkably, the company's provision for non performing assets declined by 44% in FY01. The net NPAs as a percentage of networth stood at 1.4% as on March '01. As part of its decision to exit from non core business, KMFL has sold its entire stake in Matrix Information for the loss of Rs 69 m. The loss has been charged to FY01 profits.

At the current market price of Rs 48, KMFL is trading at P/E of 6x and Price/Book value ratio of just 0.6x. In the past, the company has enjoyed Price/Book value ratio in the range of 1-3 times. Its valuations are likely to remain on lower side, considering the pressure on its core business of hire purchase.

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