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| The fundamentals are reasonable, but there is no real chance of substantial gains on listing
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| If markets were the best judge of stock prices, Vijaya Bank should not be trading at anything more than Rs 28.65 over the next two months unless there is a radical shift in market sentiment.
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| After all, the public offering of 10 crore additional shares by Vijaya Bank will do nothing to change the way the market values the scrip currently.
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| So the current public ofer is no novelty. In fact, the potential upside for the stock will be limited to its current market price. Investors with substantial money to exploit the arbitrage opportunity - the issue price is Rs 24 while the current market price is Rs 27 - may consider investing in the bank for listing gains.
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| For others who may want to consider the stock from a medium-term investment point of view, Vijaya Bank does not look bad at all.
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| However, there is no compelling case for investing in the bank given that many other banks with better credentials are available cheaper.
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| For example, the trailing book value per share for Vijaya Bank works out to Rs 18.02.
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| At this price, the offer is being made with a price-to-book value ratio of 1.33.
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| At the same time, banks like Bank of Baroda, Jammu and Kashmir Bank and Syndicate Bank are trading at a trailing price-to-book value ratio of 0.90, 0.93 and 0.80 respectively.
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| Healthy profits, insulated from rate hikes
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| The bank has been showing a healthy uptrend in the last few years. It falls in the medium-sized category with 843 branches spread over the country.
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| The net profit of the bank has shown a hefty growth of 50.15 per cent for the financial year ended March, 2003, over the previous financial year, though much of this has come because of the rise in the bank's treasury profits.
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| Treasury profits rose from Rs 2.67 crore in 2000-01 to Rs 90.17 crore in 2001-02 and to Rs 225.08 crore in 2002-03. This raises the question of sustainability of treasury gains in the future.
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| However, the bank says it will continue to make profits from the sale of investments as long as the soft interest rate scenario continues. It also asserts that it is protected in case interest rates move up.
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| The bank has Rs 950 crore as unrealised treasury gains and Rs 160 crore as investment fluctuation reserves. This should provide a cushion to the bank even if interest rates move up by 3.5 per cent.
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| Management is bullish on business
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| The credit-to-advances ratio of the bank, at 46.37 per cent for the year ended March 2003, is on the lower side. However, the bank says it increased the ratio to close to 50 per cent in September 2003.
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| The bank's advances have been growing at a healthy pace. It has shown a 20 per cent compounded annual growth rate in advances over the last five years - touching 27 per cent for March 2003.
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| For the first quarter ended June 2003, the compounded growth rate has touched 30 per cent on an annualised basis. The bank intends to double advances by 2005, raising the credit-deposit ratio to 58 per cent.
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| This is likely to have a positive impact on the bank's profitability. Animesh Shah of AC Mehta Investment Intermediates says, "The growth in retail lending will improve the advances which will, in turn, improve the profitability of the bank."
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| The bank is also taking steps to increase its net interest income. This will also improve its core operations. The bank's net interest income improved 32.57 per cent for the year ended March 2003 over the previous financial year.
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| This was largely because of the fact that a large proportion of the bank's deposits has come for repricing in the second half of the year. This has continued in the first quarter of the current financial year with net interest income rising by 39.87 per cent.
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| The bank intends to reduce its cost of deposits, which is presently at 6.32 per cent, to 5.90 per cent by the end of the current financial year. This, in addition to an increase in advances, would mean that the interest margin of the bank should increase.
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According to the bank
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