The share price ofprivate lenderKotak Mahindra Bank Ltd has largely underperformed the Bombay Stock Exchange’s banking index, the Bankex, in the past few months, a trend that continued on Friday, with the stock falling 5.7%.
Its consolidated profit after tax (PAT) for the fourthquarter was up 41% compared with a year ago, while PAT for the stand-alone bank rose by 86%.
(South-Bound)The bank’s growth was driven by a huge 99% rise in net interest income, which boosted the profit in spite of lower “other income” and higher provisions. The lender’s international subsidiaries also did well, boosting their PAT by 125%.
The stock has been dogged by worries about its exposure to capital markets, and although its subsidiary Kotak Securities Ltd reported a profit of Rs101 crore in the March quarter, a growth of 35% over a year ago, it is well below the brokerage’s PATof Rs146 crore in the third quarter, when the growth was 82%, although the decline is not much compared with the fall in market volumes.
The consolidated entity maintained asset quality, with net non-performing assets at 0.33%, at the same level as the December quarter. Its net interest margin for the entire year was 5.6%, compared with 5.7% in the nine month to December, which implies some slippage during the fourth quarter.
As expected, there are signs of a slowdown.Consolidated advances were up 41% compared with a year ago, as on 31 March, against a growth of 56% on 31 December. The bank’s growth in advances also declined from 54% in December to 42% in March.
Uday Kotak, vice-chairman of the bank, says that his strategy for the immediate future will be to concentrate on lending and spreads. The bank is aiming for a 30% growth in advances this year. It’s a difficult task with a slowdown in the economy, but the 86% rise in PAT is proof that it can be done.
The problem is that Kotak Securities’ profit for fiscal year that ended on 31 March was Rs408 crore, out of the total consolidated PAT of Rs991 crore for the year. This dependence on capital markets will continue to impact the stock, besides concerns about mark-to-market losses.
Ashok Leyland: tough act to follow
Indian truck maker Ashok Leyland Ltd posted decent results in difficult circumstances for the quarter ended 31 March.
The company’s sales grew by 11.8%, double the rate at which they had grown in the first three quarters of the fiscal year, and operating profit rose 17.7%, compared with a growth of a mere 4.3% in the nine months to December.
While growth in average realizations remained the same as in the rest of the year, thanks to price increases and a change in product mix, volumes grew faster in the March quarter, as sales of commercial vehicles revived.
But that’s no reason for excitement, as it was partly a result of dealers flushing out inventory at the end of the fiscal year. That sales was higher than production in March testifies to this.
Some analysts saw a problem in Ashok Leyland’s high inventory, and the company seems to have done well to post reasonable results under the circumstances.
The company’s plan to raise prices in April seems to have helped the lorry maker convince dealers to take unusually high delivery in March, points out an analyst. But high dealer inventory ends in lower sales in the future. Not surprisingly, the company’s sales fell in April.
As far as fiscal year 2007-08 goes, Ashok Leyland did well to post a 9.4% growth in operating profit and a 6.4% rise in net profit. Thanks to cost cutting and price increases, the company was also able to offset increasing raw material costs and the impact of providing for higher wages for its workers. However, it would be tough to repeat the performance this fiscal.
With the economy’s growth slowing, the demand for commercial vehicles is likely to be lower. Sales of passenger buses, which saved the day for the company last fiscal year,may not help as much, given the higher base.This segment grew 51%l ast year, almost entirely offsetting the drop in the sales of commercial vehicles.
There’s been, however, some respite on costs, since the government has forced steel firms to cut prices.
But one major concern regarding Ashok Leyland’s financials in the near future is the expected sharp rise in interest costs. The company currently owes Rs700 crore, which is likely to rise to Rs2,300 crore this fiscal, to support its plans to double capacity within three years.
The benefits from the capital e?xpenditure will be far away, but it would erode profitability in the interim, especially at a time when business fundamentals are not good. This could be one reason its stock has corrected by more than 6% since it announced quarterlyresults, despite reporting better than expected operating profit.