Tuesday January 29, 03:15 PM
IDBI: Provisions hit earnings |
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By Equitymaster.com
Dismal growth in industrial production and a slowdown in demand for project finance continued to hit IDBI (IDBI.BO, news) 's financial performance. IDBI's interest income declined marginally in the December quarter and earnings dropped by 77%.
| (Rs m) |
3QFY01 |
3QFY02 |
Change |
| Income from operations |
19,230 |
19,094 |
-0.7% |
| Other Income |
392 |
213 |
-45.7% |
| Interest expense |
16,714 |
15,569 |
-6.9% |
| Net interest income |
2,516 |
3,525 |
40.1% |
| Other expenses |
1,240 |
1,213 |
-2.2% |
| Operating Profit |
1,276 |
2,312 |
81.2% |
| Operating Profit Margin (%) |
6.6% |
12.1% |
|
| Provisions and contingencies |
0 |
2,173 |
- |
| Profit before Tax |
1,668 |
352 |
-78.9% |
| Tax |
120 |
- |
- |
| Profit after Tax/(Loss) |
1,548 |
352 |
-77.3% |
| Net profit margin (%) |
8.0% |
1.8% |
|
| No. of Shares |
652.8 |
652.8 |
|
| Diluted Earnings per share* |
9.5 |
2.2 |
|
| P/E Ratio |
|
6.7 |
|
| *(annualised) |
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IDBI's net interest income jumped by 40% thanks to reduction in interest cost. The institution has refinanced its high cost debt by raising funds at lower cost. Its operating expenses also declined by 2% during the quarter. Consequently, IDBI's cost to income ratio declined to 33% from 43% in 3QFY01. Reduction in interest cost and other expenses escalated its operating profits by 81%.
The institution's other income declined by 46% in the December quarter. This coupled with higher provisions for non-performing assets trimmed IDBI's earnings. Year to date, IDBI has provided Rs 6 bn on account of provisions for bad loans. IDBI had not made any provision in FY01 and consequently its net NPA ratio was on the higher side at 14.2%. In FY02 the institution's net NPA ratio is expected to be around 13.7% with its efforts to increase provision amount quarter over quarter.
At the current market price of Rs 15, IDBI is trading at adjusted Price/Book value ratio of 1.8x FY02 projected earnings. IDBI's net NPAs account for 94% of its networth. The institution is taking steps to clear accounts by making higher provisions. However, it will take atleast 5-6 years for IDBI to increase its provision coverage to 50%. Until then its earnings are likely to remain depressed.
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