Visit http://indiaer.blogspot.com/ for complete details For 2QFY2011, Indian Bank reported moderate net profit growth of 11.8% yoy to
`416cr, which was above our estimates of `377cr because of lower provisioning
expenses. Operating income was on expected lines. While slippages continued to
be above comfortable levels, recoveries and upgrades helped the bank to keep
provision expenses low. Hence, we maintain our Accumulate view on the stock.
Strong advances growth: The bank’s net advances and deposits grew by 2.1%
qoq (28.8% yoy) and 7.7% qoq (22.4% yoy), respectively. CASA deposits
witnessed 6.2% qoq growth (up 27.4% yoy), with current account deposits
growing by 7.3% qoq (33.0% yoy) and saving account deposits increasing by
5.9% qoq (up 25.9% yoy). The CASA ratio declined from 32.7% in 1QFY2011 to
32.2% in 2QFY2011. The bank was able to improve its NIM by 5bp sequentially
to 3.76% because of improvement in yield on advances to 10.22%. Consequently,
net interest income (NII) grew by healthy 6.1% qoq and 29.5% yoy to `983cr.
Gross NPAs in absolute terms declined by `85cr. Though slippages were above
comfortable levels (at `330cr, implying annualised slippage ratio of 2.1%),
recoveries and upgrades helped the bank to restrict annualised provision/average
assets to 0.4% in 2QFY2011.
Outlook and valuation: The bank’s predominantly rural and semi-urban presence
has enabled it to maintain reasonable cost of funds, resulting in more resilient
NIMs than other mid-size PSU banks. While slippages are above comfortable
levels so far, going forward strong recoveries and upgrades as well as declining
slippages are likely to result in lower provision expenses. At the CMP, the stock is
trading at 7.4x FY2012E EPS of `41.3 and 1.4x FY2012E ABV of `215.9, which is
below our target multiple of 1.5x FY2012 ABV. Hence, we maintain our
Accumulate view on the stock with a Target Price of `324, implying a 6.7% upside
from current levels.
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