Vijaya Bank 2QFY11 – Improving margins, asset quality; Buy :: Anand Rathi

Visit http://indiaer.blogspot.com/ for complete details 􀂄 􀂄


Vijaya Bank
2QFY11 – Improving margins, asset quality; Buy
 Net profit up 33.1%. Robust net interest income (NII) growth of
33.6% yoy and stable productivity aided net profit growth. Vijaya
Bank is likely to register 23.4% earnings CAGR over FY10-13e,
driven by higher NIM and greater productivity.
 Subdued business growth, higher margins. Despite a subdued
7% yoy business growth (advances grew 5.8% yoy, deposits 7.8%)
the bank reported healthy NII growth owing to the sharply
improved reported margin by 77bp yoy to 3.16%, fuelled by a
rising CASA share of 25.7% compared with 23.5% in 2QFY10.
 Stable productivity, lower treasury profits. Cost-to-income was
stable at 51.1% compared with 51.8% in 2QFY10, despite higher
provisioning of `0.7bn owing to higher gratuity and pension.
Non-interest income stood 1.5% lower yoy due to a 25% yoy
decline in treasury income.
 Improving asset quality. Gross NPAs marginally decreased
0.3% qoq. The bank has shored up its NPA coverage, including
technical write-offs, by 400bp to 68.8% and secured an extension
to reach 70% coverage till Mar ’11.
 Valuation. At our target price, the stock would trade at 1.5x
FY12 and 1.2x FY13 estimated ABV. Risks: Slow economic
growth leading to credit growth being lower than estimated and
higher NPAs.