| Q4, FY05 | Growth in
net interest income
(%) | Int exp/
Int earned |
| Allahabad | 13.8 | 59.7 |
| Andhra | 14.5 | 54.6 |
| BoB | 40 | 50.1 |
| BoI | -ve | 69.6 |
| BoM | 29.5 | 58.5 |
| Canara | 25.9 | 54.8 |
| Corporation | 16.6 | 50.3 |
| Dena | 32.4 | 55.4 |
| HDFC Bank | 42.4 | 40.8 |
| ICICI Bank | 44.4 | 69.7 |
| IOB | 11.2 | 51.7 |
| PNB | 5.50 | 50.9 |
| SBI | 19.2 | 54.3 |
| Syndicate | 19.6 | 45.7 |
| UCO | 2.40 | 63.3 |
| Union | 32.9 | 57.5 |
| UTI | 17.9 | 64.7 |
| |
| HDFC Bank followed hard on its heels, with a growth in net interest income of 42.4 per cent. Among the state-owned banks, Bank of Baroda has been able to grow its net interest income by 40 per cent in Q4. |
| |
| Although the bank's net profit has dipped in Q4 on account of much lower "other income", the big rise in net interest income, if sustained, should lead to higher profits going forward. |
| |
| At the other extreme is Bank of India, which has seen a fall in its net interest income in Q4 compared with the same period of the previous year. |
| |
| Another metric that helps ensure growth in net interest income is the interest spread. One way of looking at the spread is to consider interest expended in a quarter as a percentage of interest earned. |
| |
| HDFC Bank is the leader by a distance on this metric, with its interest expended being only 40.8 per cent of interest earned in the fourth quarter. Among the state-owned banks, Syndicate Bank does well on this front, with interest expended being 45.7 per cent of interest earned. |
| |
| At the tail end are banks such as ICICI Bank, UTI Bank and Bank of India, all of whom have interest expended at more than 60 per cent of interest earned. |
| |
| Banks that perform well on both the above metrics should be able to show better performance going forward. |
| |
| Bharat Forge |
| |
| The Bharat Forge stock has risen about 100 per cent in the past year, taking its total gains in the past three years to over 900 per cent. Surely, for a stock that's jumped by over 10 times, Bharat Forge should be expensive now. |
| |
| Based on consolidated earnings for FY05, the company gets a rather high valuation of 27.6 times. Analysts, however, continue to be bullish, citing that earnings growth could average around 60 per cent in the next two years. |
| |
| The company is in the process of increasing its steel forging capacity by 85 per cent to 2.4 lakh tonne. Besides, it's increasing its crank shaft machining capacity by over 60 per cent, while its front axle machining capacity will increase by close to 150 per cent. The capacity addition will be done in stages and will come on stream between March and December 2005. |
| |
| According to the company, much of this additional capacity is pre-sold. In other words, existing customers have already committed to give fresh orders that will take care of the new capacity. This is the main reason for the optimism about growth going forward. |
| |
| But it remains to be seen whether earnings growth would be in line with revenue growth. Much of the growth going forward is expected to come from exports and the overseas business, which have lower margins compared to the domestic business. |
| |
| For instance, Bharat Forge's Indian operations (including the exports business) had an operating margin of 26.9 per cent in FY05. CDP, the German company it had acquired last fiscal had an operating margin of just 12.5 per cent in the same period. |
| |
| Besides, although steel prices have eased on a quarter-on-quarter basis, they continue to be considerably higher on a year-on-year basis. |
| |
| This could further hurt margins. But in any case, earnings growth can be expected to be higher than the trailing PE of 27.6 times the Bharat Forge stock commands. |
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| With contribution by Mobis Philipose |
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