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IPO Analysis
Bank of Maharashtra- Recommendation: BUY
Background & Business
Issue Details
Issue price
Rs 23 (premium of Rs 13)
Issue size
10 crore shares
Face value
Rs 10 each
Issue opens
February 25, 2004
Issue closes
March 4, 2004
Minimum Application
100 shares
Minimum investment
Rs 2300
Lead managers
SBI Caps, Kotak Investment Bank, Enam Financial Consultants, AK Capital Services Ltd and Allianz Securities Ltd
Registrar
MCS Ltd

Financial Snapshot

(Rs. in crore) FY01 FY02 FY03 Chg (%)
Total Income
1928.3
2305.6
2442.1
5.9
Interest Income
1705.9
1998.1
2081.7
4.2
Other Income
222.4
307.5
360.5
17.2
Expenditure
1688.3
1890.5
1921.6
1.6
Interest Expenditure
1147.6
1411.3
1405.4
-0.4
Operating Expenditure
540.7
479.2
516.2
7.7
Profit before provisions & contingencies
240
415
520.6
25.4
Provision & Contingencies
193.5
258.8
298.6
15.4
Net Profit
46.5
156.3
222
42.0
Equity Capital
330.5
330.5
330.5
EPS (Rs)
1.4
4.7
6.7
Book value (Rs)
20.5
24.5
28.7
Adj. book value (Rs)
5.5
10.0
14.8

Key ratios

Financial Year ended March 31st, 2002 2003
Net NPA to Net Advances ratio (%)
5.81
4.82
Interest income/ Working funds (%)
9.90
9.26
Non-Interest income/ Working funds (%)
1.52
1.60
Return on Assets (%)
0.72
0.89
Net Profit/ Working funds (%)
0.77
0.99
Capital Adequacy ratio (%)
11.16
12.05
Tier I
6.56
6.16
Tier II
4.60
5.89
Return on Average Net worth (%)
20.99
25.25

Valuation & Recommendation

Bank of Maharashtra is a bank with sound financials and consistent growth track record. Its Net NPAs have declined to 4.82% in FY03 and is almost in line with the average of 4.54% of all Public sector banks. Its capital adequacy ratio at 12.05% is also well above the minimum required norm of 9%. The bank has consistently declared 20% dividend over the past three years. At the issue price of Rs 23, this itself gives a dividend yield of 8.7. Further, with a book value of Rs 28.7 and a P/E of 3.4 times its FY03 earnings, its valuation is the cheapest among the public sector banks. We recommend investors to subscribe to the IPO.

Registered in 1935, Bank of Maharashtra commenced operations on February 8, 1936. Over the years, the bank has grown to become one of the major banks in India. As on 30th September, 2003, the bank has 1251 branches, 37 extension counters and 45 ATMs across the country. The growth of the bank has been aided by the take over of 4 small banks namely Bank of Konkan Ltd, Bank of Nagpur Ltd, Bharat Industrial Bank Ltd and Banthia Bank Ltd. The bank has also sponsored 3 Regional Rural Banks as part of its fulfillment towards social rural responsibility. This public issue will bring down the government stake from the current 100% to 76.7%.
Issue Objective
To augment the capital base for meeting the capital adequacy norms in future.

To augment the long term resources of the bank and

To list the shares on the stock exchanges.
Past Performance

Bank of Maharashtra is a financially sound bank with a deposit CAGR of 19.4% and advances CAGR of 21.5% over the past five years.

Its capital adequacy ratio as on 31st March, 2003 stands at a comfortable 12.05% as against the RBI requirement of 9%.

It has a book value of Rs 28.69 per share. It has also distributed consistent 20% dividend over the past three years.

The bank’s net NPAs have reduced from 12.35% in FY01 to 4.54% in FY03.

Bank of Maharashtra’s performance and cheap valuation as compared to its peers:

  EPS (Rs) CMP (Rs) 20th Feb 2004 P/E RONW (%) Book Value (Rs)
Allahabad Bank
4.7
28.35
6.0
19.7
27.1
Andhra Bank
9.8
48.65
5.0
40.3
27.9
Indian Overseas Bank
7.4
41.75
5.6
36.7
28.3
Syndicate Bank
7.1
37.5
5.3
26.7
29.2
Bank of Maharashtra
6.7
23 issue price
3.4
23.4
28.7
EPS, RONW and Book value are as on 31st March, 2003
Concerns
The Bank has not provided financials after March, 2003. Hence the performance of the bank over the past nine months is not available. However, in the analyst meet, the bank’s management assured the analyst community of continued fine performance, without distorting the profitability growth.

As on March, 2003 15% of total income constituted of treasury income. This is not likely to sustain in the coming years.

The top 10 clients accounted for 30% of the bank’s total advances in FY03. Default by any of these clients could affect the bank’s performance.

  Priya Madani
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