Result Highlights:

Strong Balance Sheet Growth leading to rising Net Interest Income:

UTI Bank has registered a 48% yoy growth in its net interest income to Rs 4,643 mn during Q4FY07. For FY2007 net interest income grew by 45% on a yoy basis. This was on account of strong growth in advances by 65% yoy to reach Rs 369 bn as on March 2007 & improvement of interest margin by 6 bps. Total deposits have also grown fantastically by 47% to Rs 588 bn. Incremental credit deposit ratio is at 78%. Bank’s CASA ratio remained constant at 40%.

Strong growth in Fee Income:

Lower provision on NPA:

Although the Net NPAs as a proportion to Net Customer Assets has decreased from 0.75% in FY06 to 0.61% in FY07, Net NPA has increased by 21% in absolute terms. This is on account of lower provision for NPA by 42% on a yearly basis. As a result provision coverage ratio has decreased from 42% last year to 37% for FY07. Total provision & Contingencies including provision for NPA, standard assets & depreciation on investments has increased by 40% for FY07.

Growth in PAT above expectation:

UTI Bank has registered a growth in PAT for the quarter by 40% yoy to Rs 2119 mn. The growth in PAT for Q4FY07 has outpaced our expectation by ~5%. It is on account of exceptional growth in balance sheet, along with improvement in interest margins, strong growth in core fee income and lower provision on NPA. Net profit for FY07 has grown by 36% to Rs 6,590 mn compared to Rs 4,852 mn last year. It has declared a dividend of Rs 4.5 per share.

Concerns:

The Banks Tier I ratio has decreased from 7.26% last year to 6.42% as on March 2007, as a result the bank intends to issue fresh equity during FY08 which will dilute the earnings.

Uncertainty about change in CMD position which is currently held by Mr. PJ Nayak

Further rise in interest rates would make it difficult for the bank to continue the high credit growth.

Valuation:

We expect UTI Bank to continue its growth streak and net profit to grow at a healthy rate over next two years. At the CMP of Rs. 470, stock trades at 15.6x its earnings and 3.5x it’s adjusted book value for FY08E. Our target price of Rs.535 is at a 3.3x its adjusted book value for FY09E. In view of this, we retain our call on UTI Bank to “BUY”, with target price of Rs. 535. The Target represents ~14% upside from the current level.