IDBI: F2Q11: Margins Expand Sharply :: Morgan Stanley

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IDBI: F2Q11: Margins Expand Sharply

IDBI Bank reported profits of Rs4.3 bn (+71% QoQ
and +69% YoY): Our estimate was Rs3.3 bn. The key
reason for the beat was significantly better than
expected NII progression (driven by margin expansion)
The key highlights from the results include:
1) Margins expanded sharply, 63 bps QoQ / 122 YoY
to 2.27%.
2) Volume growth was weak. The loan book
contracted by 4% QoQ and the deposit book by 2%
QoQ. On a YoY basis, loans grew by 24% YoY
while deposits grew by 18% YoY.
3) Loan loss provisions were stable QoQ at Rs3.2 bn
(96 bps of loans, annualized). Coverage ratio
improved to 74.5% from 73.6% in the previous
quarter. GNPLs were down 6% QoQ.
4) Operating costs moved up by 26% QoQ and 90%
YoY, driven by employee expenses. However,
given strong revenue progression, cost:core income
ratio moved to 39% from 38% in the previous
quarter.
5) Capital gains and recoveries contribution to
earnings remained very low.
6) Core fee income growth was at 14% YoY (+24%
QoQ). It was 50% YoY in the previous quarter.
Given the sharp nature of the rise in margins, we
will look for further clarity on margin sustainability
at IDBI Bank’s analyst meeting (scheduled on
October 29). We will follow up with a more detailed
note.