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See the Detailed Performance & Valuation Analysis of Muktinath Bikas Bank (Including Current Technical Analysis & Buy/Sell Signals)

Fri, Aug 10, 2018 9:51 AM on Company Analysis, Exclusive, Premium,
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~Rishab Agrawal

Company Introduction

Muktinath Bikas Bank Limited (MNBBL) is a renowned name in Nepalese banking sector. Established on Poush 19, 2063 B.S., Muktinath Bikas Bank Limited has obtained permission from Nepal Rastra Bank to operate as a “B” class national level financial institution. The central office of the Bank is situated at Kamaladi -28, Kathmandu of Kathmandu District. It has a special wing for Micro-Credit finance which is a model for micro banking activities throughout the development banks in Nepal.

The Bank is committed for good corporate governance practices and banking activities with prudent banking culture. It has been offering various products and services for its customer with competitive rate in market. It has been able to provide diversified service (Modern Banking, Limited Banking and Microfinance) backed by the latest technology.

The bank boasts of having an issued capital of Rs.2.59 Arba and authorized capital of Rs.3 Arba. It also posted an astounding net profit of Rs. 57.54 crore in the fourth quarter of FY 74/75.

Board of Directors

The board of directors consists of five members. They are:

  • Khim Prakash Malla (Chairman)
  • Narayan Kumar Shrestha (Director)
  • Narayan Prasad Paudel (Director)
  • Gajendra Man Shrestha (Director)
  • Chudamani Kandel (Director)

Key Indicators

As per the fourth quarter report posted by the bank, some of the major financial indicators stand as follows- Net worth Per Share at Rs.136.57, Earnings per Share at Rs.22.20, Price to Earnings Ratio is 17.02 times, Price to Book Value Ratio is 2.77 times, Return on Equity stands at 16.26% and Return on Assets is at 1.65%.

Comparison with Industry Standards

For a precise picture about the performance of MNBBL against its competitors, we compare its key indicators as per the fourth quarter reports with the industry average.

On comparison with industry average, almost all of the key indicators are above average except for Return on Asset which is very close to average. It also indicates that MNBBL is at somewhat better state than other players in its industry.

Stock Performance

The monthly and quarterly Beta are 0.917 and 1.168 respectively. The monthly Value at Risk (VaR) at 5% stand at 4.23% while at 1% confidence, it is 6%. The bank’s LTP stands at Rs.379 per share as on August 9, 2018.

Other Ratios Analysis

Other key ratios related to banking industry and its core business have also been compared with the industry average. These ratios give an insight on the performance and operational efficiency of the bank.

Particulars

Industry Average

Q4 FY 74/75

Cost to Income Ratio (in %)

41.33

38.34

Net Interest Income to Total Income (in %)

83.06

75.59

Real Estate Loan/Total Loan (in %)

6.61

5.59

Home Loan and Real Estate Loan to Total Loan (in %)

15.63

16.1

Staff Expenses / Total Expenses (in %)

51.35

54.68

Non-interest Income to Operating Cost (in %)

42.71

63.67

Interest Expenses to Interest Income (in %)

58.64

59.42

Staff Expenses to Total Operating Income (in %)

21.12

20.97

Staff + Other Expenses to Total Operating Income (in %)

41.33

38.34

Operating efficiency (in %)

21.52

34.62

Funding Income (in %)

83.06

75.59

Non-Funding Income (in %)

16.94

24.41

Financial Indicators

On comparison of paid up capital, operating profit and net profit with the previous quarters, the following can be inferred

As we can see from the graph above, the paid up capital had consecutively grown in the opening quarters of FY 74/75. From the last quarter of FY 73/74, the paid up capital of the bank has grown by more than 67% till the latest quarter.

Consistent growth can be seen in the operating and net profit as well. The bank posted a net profit of Rs.57.548 Crore in the latest quarter as compared to net profit of Rs.49.632 Crore in the corresponding quarter of FY 73/74. A growth of almost 16% can be seen in the net profits against previous years. Similarly, growth of 20% can be seen in the operating profit of the bank.     

Comparison of deposits and loans would give a precise picture about the growth story of the bank. Taking the figures of previous quarters and plotting them on a graph, they give the following picture:

Growth of 80% in deposits and 65% in loans and advances can be seen against the figures of the same quarter of FY 73/74. Achievement of such growth figures clearly shows that MNBBL is a strong player in the industry and is giving a tough competition to other players in the industry.

Financial History

For better understanding, we have taken the paid up capital and net profit of the past five years of the bank and plotted them on a graph.

From the graph above, we can see that the paid up capital of the bank has grown from mere Rs.24.5 Crore in FY 2069/70 to an astounding Rs.259.17 Crore in FY 2074/75. With that about it has also fulfilled the minimum capital requirement ruled by the NRB. Also, consistent growth in the net profit can be seen. Average growth of more than 43% can be seen in the net profits of the past five years which is a good indicator of growth of the company and of the shareholders.

We have also accounted for dividend issued by the bank in the form of bonus shares and cash dividends in the past five years. They give the following view:

MNBBL has had a strong dividend history in the form of bonus shares and cash dividends. It is likely that the company will follow the same trend as the shareholders expect a similar return on their investment and they would be disappointed if the bank falls short of their expectations. The amount of profit distributed by the bank as dividend will have a huge impact on the price of share in the secondary market.

Valuation

Some of the valuation ratios have also been considered to ascertain if the price of the share is overvalued, undervalued or optimal.

Valuation Ratios

Value

Remark

P/E Ratio (times)

17.07

-

Core Annual Growth Rate (%)

47.37

-

PEG Ratio

0.36

Undervalued

Graham Number

47.37

Overvalued

  • P/E ratio between 15 to 20 times is considered to be optimal. The banks P/E ratio is above the industry average (14.40 times), and falling within the optimal range.
  • Core Annual Growth Rate shows the annual growth rate of the core business of the bank. It takes into account the size of the balance sheet and increase in core income and profits. As per this, the bank has good growth prospects.
  • PEG ratio shows the P/E to Growth ratio. If this ratio is less than 1, it indicates undervaluation and if it is more than 1, it indicates overvaluation. The PEG ratio indicates that MNBBL share prices are undervalued.
  • Graham number is the product of PBV (Price to Book value) and P/E ratio. If this number is less than 22.5, it indicates undervaluation, if not then overvaluation. Graham number indicates slight overvaluation of the price of share.

Summary

From the analysis made above, it is clear that MNBBL is strong player in the industry with attractive growth prospects and strong financial history. It has recently opened a number of branches at different locations adding to the growth story of the bank. The share price of the bank has been falling due to the market trend and it seems that right now is the correct time to invest and obtain a stake in the company. Good financial indicators ensure returns to the investors in the form of dividends and value appreciation.

Technical Analysis

Candlestick: On the weekly and monthly candlestick pattern, small bodied candle has formed which shows indecisiveness in the market. At the same time, it also supports impending trend reversal. Candlestick pattern is opposing the major trend (downtrend).

Exponential Moving Average: We have used three EMA's of 5 days period (Red), 20 days period (Green) and 180 days period (Black). Major trend is still downward but the short-term and mid-term trend is clouded, and do not provide a clear picture.

Volume: Comparing to the volume of last one month, the average volume of this week was marginally up. This signal cannot be taken as a strong signal but is definitely backing the small uptrend.

MACD: MACD is near the zero level which means that the current trend sideways. MACD is giving a mixed signal.

Bollinger Bands: It is giving a signal for low volatility period and a clear market direction from the Bollinger Bands is not observed.

RSI: Strong signal was not observed from the RSI and it is in a neutral zone.

Prediction: There is an opportunity for trading in the Muktinath Bikas Bank as the stock is trading near the lowest point of last five years. As the overall market trend is downward, there is an opportunity to get the stock at a very discounted price. A strict stop-loss should be at Rs 350 and Profit Target should be at Rs 420. It the stock price falls beyond Rs 350, then there is a risk.