IPOs
  IPO Centre
   
  New Listings
   
  Basis Of Allotment
   
  Prospectus Centre
   
  New Issue Monitor
 
IPO Analysis
Vijaya Bank - Recommendation: Buy
Background
Issue Details
Issue price Rs 24 (premium of Rs 14)
Issue size 10 crore shares
Face value Rs 10 each
Issue opens October 9, 2003
Issue closes October 17, 2003
Minimum Application 200 shares
Minimum investment Rs 2400
Lead managers SBI Caps, DSP Merrill Lynch, JM Morgan Stanley, Allianz
Registrar MCS Limited

Financial Snapshot

(Rs. in crore) FY00 FY01 FY02 FY03 Chg (%)
Total Income 1314.3 1512.5 1727.3 2016.8 16.8
Interest Income 1197.5 1356.2 1538.5 1670.8 8.5
Other Income 116.8 156.3 188.8 346.0 83.3
Expenditure 1188.9 1333.9 1474.8 1584.5 7.4
Interest Expenditure 809.4 895.8 1053.2 1027.4 -2.4
Operating Expenditure 379.5 438.1 421.6 557.1 32.1
Profit before provisions & contingencies 125.4 178.5 252.5 432.4 71.2
Provision & Contingencies 72.6 107.8 121.6 235.8 93.9
Net Profit 52.8 70.7 130.9 196.6 50.2
Equity Capital 259.24 359.24 359.24 333.52  
EPS (Rs) 2.04 2.48 3.65 5.89  

Key Ratios

Financial Year
ended March 31st, 		2000 2001 2002 2003
Earnings per Share (EPS) (Rs.) 2.04 2.48 3.65 5.89
Book value (Rs) 13.74 14.65 17.86 22.46
Return on Average Assets (%) 0.46 0.54 0.85 1.13
Other Ratios        
Net NPA to Net Advances ratio (%) 6.65 6.23 6.02 2.61
Net Interest margin (%) 3.40 3.58 3.24 3.54
Gross Yield (%) 11.30 11.50 10.80 10.30
Yield spread (%) 3.40 3.70 3.00 3.50
Capital Adequacy ratio (%) Na 11.5 12.25 12.66
Credit/Deposit Ratio (%) na 45.3 42.2 46.4
Cost/Income Ratio (%) na 71.1 62.5 44.4

Valuation

The issue has been priced at Rs 24 (premium of Rs 14 per share) amounting to discounting of around 4x its FY03 earnings of Rs 5.89 per share. This is in line with the valuations attracted by some its peers like Andhra Bank, Syndicate Bank, Union Bank. However, it is fairly priced if you consider the price/book value and price/adjusted book value of 1.22x and 1.62x expanded equity capital.

Given the improving fundamentals of the bank, we believe there is limited downside with scope for decent returns at the issue price. The scrip is trading at 25% premium to the offer price. We recommend a buy.

Vijaya Bank was founded by Shri A B Shetty in 1931 at Mangalore, Karnataka. The bank became a scheduled bank in the year 1958. It grew steadily into a large all India bank by merging with nine smaller banks during 1963-68. The bank was nationalised on 1980 with 100% holding by the government of India. As on March 2003, the bank had 843 branches across the country and deposit base of Rs 17020 cr. Around 356 branches are completed computerised and the bank had 18 ATMs as on March 2003.

After the IPO in January 2001, the shareholding of government of India came down from 100% to 72.16% which has further come down to 70% after return of 25.72 crore to government in FY02.

Issue objective
The issue is primarily aimed at augment the Tier-I capital base to meet the future growth requirement of the bank. Although the capital adequacy of Vijaya Bank stood at 12.66% as compared to the prescribed limit of 9%, it needs to augment its capital base to keep pace with the increase in advances (risk weighted assets) in this fiscal.

Subsequent to the completion of public issue, the government stake in the bank will decline from 70.02% to around 53.86% of the post-issue equity capital. Thus, there will not be any scope for return of capital to government after the dilution of government holding due to the second public offer.
Past performance

The bank has shown continuous improvement in operational parameters for last couple of years. The most striking being the sharp reduction in net NPAs to a comfortable 2.61% from over 6% in the previous few years. What’s more, net NPAs further reduced to 1.7% as on June 2003 due to the aggressive provisioning by the bank. Apart from accelerated provisioning for NPAs, the bank has also provided for Rs 107 cr of VRS related deferred revenue expenses for FY04 and FY05in FY03 itself.

Deposits have grown at a CAGR of 15.7% to Rs 17020 cr in the last five years. Despite 68% of it being the high cost term deposits, the bank has been able to maintain overall cost of funds at 6.58% level. Advances have outpaced the growth in deposits, with a CAGR of 21.3% to Rs 7891 cr in the last five years. It has been aggressive in expanding its retail assets. The retail portfolio jumped by 80.3% to Rs 1854 cr in the last fiscal. Consequently, the bank has been able to maintain healthy net interest margins of over 3.5% in FY03.

In addition to this, the bank has one of the highest Return on Networth (RoNW) of 42.6% and Return on Assets (RoA) of 1.8%ong public sector banks. The declining trend in Cost/Income ratio also indicates the improvement in operational efficiency of the bank.
Concerns

The bank is largely focused on Southern region of he country. Over 70% braches are in Karnataka or its neighbouring states. This apart, the bank lags behind some of the other comparable banks in IT initiatives like ATM network and computerisation of its branches. The bank is also burdened with high employee base of 11,000 people. Thereby, impacting the overall productivity. Going forward, there could be another round of VRS, which could impact the growth of net profits in he coming years.

  Gaurav Dua
Back