• JULY 21, 2003

IDBI Bank 1QFY04 net up 101%

IDBI Bank, one of the fastest growing retail banks in the country has reported strong performance for its June quarter. On a YoY basis, the bank has reported a strong 14% growth in topline, with an even better 101% rise in its bottomline. There has been a significant improvement in operating profits, mainly due to falling interest expenses and significant topline growth. A strong growth in other income has further aided bottomline growth.

(Rs m)1QFY031QFY04Change
Income from Operations 1,415 1,618 14.4%
Other Income 314 428 36.4%
Interest Expenses 968 952 -1.6%
Net interest income 447 666 49.0%
Other Expenses 447 581 30.0%
Operating Profit - 85  
Operating Profit Margin (%)0.0%5.2% 
Provisions and Contingencies 138 16419.3%
Profit before Tax 176 349 97.7%
Tax 65 12592.8%
Profit after Tax/(Loss) 111 224 100.6%
Net Profit Margin (%)7.9%13.8% 
No. of Shares (m) 140.0 140.0  
Diluted Earnings per share*3.26.4 
P/E Ratio 5.0 

Topline growth of the bank seems to have mainly come about due to a strong growth in advances (especially in retail segment) in the June quarter. IDBI Bank is one of the most aggressive players in the home loans market, though it still has a small base. The total customer assets of the bank grew by 26% in FY03 with retail assets forming 32% (10% in FY02) of the total assets of the bank. Due to its aggressiveness, home loans accounted for 73% of total retail assets.

What is commendable about the bank's performance in 1QFY04, is the strong growth in net interest income. The bank has had good amount of success as far as reducing its average deposit costs are concerned. For instance, IDBI Bank had reported an average deposit cost of 5.9% in FY03, compared to 7.5% in FY02. This is one of the lowest in the industry. It has managed to reduce its interest costs by aggressively tapping the retail deposits market. The bank seems to have further reduced deposit costs in the June quarter, which has led to the fall in interest expenses.

Since the bank is in an expansionary phase, operating expenses have risen significantly in 1QFY04 compared to the same period last year. However, despite this the bank has been able to report a positive operating margin mainly on account of strong improvement in net interest income. Cost to income ratio for 1QFY04 stood at 53% (59% In 1QFY03).

Apart from improvement in topline and net interest margins, the bottomline of the bank has been significantly aided by growth in other income. IDBI Bank had shown a similar growth in other income in 4QFY03, which was aided mainly by growth in fee based income rather than treasury gains. We believe that in 1QFY04 too growth in other income has been primarily on account of strong growth in fee based income.

The stock is currently trading at Rs 32, at a P/E multiple of 5x its annualised 1QFY04 earnings. The bank has reported strength in its performance despite capital constraints. In order to remedy capital constraints the bank has decided on a rights issue. The rights issue will entail issuance of equity shares in the ratio of 1 equity share for every 2 equity shares held at a price of Rs 22 per share. This will go a long way in improving the capital adequacy of the bank, as the management has indicated that once the exercise is carried capital adequacy will improve to between 11.0%-11.5%. While the growth initiative and potential of the bank is intact, uncertainty (probable merger with parent, IDBI) regarding its future has induced certain amount of volatility in the stock.

Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited (Research Analyst)
103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407