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IDBI Bank
Tough times, but still looks good value
For 3QFY11, IDBI Bank reported in-line core earnings, but asset quality slipped
qoq and management has lowered business growth targets to improve NIMs and
ROAs. The rising interest rate environment poses a challenge going forward but,
with valuations remaining attractive, in our view, we reiterate our Buy rating.
3QFY11: Core earnings largely in line but asset quality slips
IDBI Bankís net interest income rose 3% qoq in 3QFY11 (+117% yoy), in line with qoq loan
growth of about 3.0% as margins remained largely stable at 2.28% (+69bp yoy). Core fee
income remained flat yoy in the quarter (+18% yoy in 9MFY11), partly due to slow asset
growth. The loan loss provision charge rose to 40bp in 3Q (26bp in 2Q) as asset quality
slipped and the bank raised its provision coverage ratio (75.6% as of December 2010). The
tax rate was low at 6% as the bank took a deferred tax credit for provisions. Although gross
NPLs rose to 2.2% of loans (as of December), on an aggregate basis (including adjusted
restructured loans) asset quality appears largely in line with domestic peers in our coverage.
FY12F: Slower loan growth, focus on liability mix
Loan growth was 21% yoy (+3% qoq) as of December 2010 and management is now guiding
for slower growth of about 14% in FY12. On the back of this revised guidance, we have cut
our loan growth estimates to 10% for FY11 and 14% for FY12 (from 16% earlier for both
years). Given the expected slower loan growth, the bank is aiming to slow deposit growth
and thus boost the proportion of low-cost deposits (current and savings accounts, or CASA).
The CASA ratio was 15.0% as of December 2010, which the bank is targeting to raise to
around 18% by March 2011. Given the rising interest rate environment and the bankís largely
wholesale-funded liability mix, we expect margins to be about 2.1% in FY12F (vs 1.9% in
FY11F).
Tough times ahead, but valuations appear attractive
On net profit, we cut FY11F by around 8% (largely due to muted other income and higher
provisions) and keep FY12F largely unchanged. In the long term, we expect traction in RoA
to continue. However, given the current rising interest rate scenario, we think the increase in
RoA and ROE could prove slower than we had earlier anticipated. We therefore reduce our
sustainable ROE assumption from 17.5% to 16.0%, resulting in our SOTP-based target price
falling to Rs181 (from Rs211). The stock trades at 1.2x FY12F adjusted book value and 7.4x
earnings, which we believe are attractive valuations. Buy
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
IDBI Bank
Tough times, but still looks good value
For 3QFY11, IDBI Bank reported in-line core earnings, but asset quality slipped
qoq and management has lowered business growth targets to improve NIMs and
ROAs. The rising interest rate environment poses a challenge going forward but,
with valuations remaining attractive, in our view, we reiterate our Buy rating.
3QFY11: Core earnings largely in line but asset quality slips
IDBI Bankís net interest income rose 3% qoq in 3QFY11 (+117% yoy), in line with qoq loan
growth of about 3.0% as margins remained largely stable at 2.28% (+69bp yoy). Core fee
income remained flat yoy in the quarter (+18% yoy in 9MFY11), partly due to slow asset
growth. The loan loss provision charge rose to 40bp in 3Q (26bp in 2Q) as asset quality
slipped and the bank raised its provision coverage ratio (75.6% as of December 2010). The
tax rate was low at 6% as the bank took a deferred tax credit for provisions. Although gross
NPLs rose to 2.2% of loans (as of December), on an aggregate basis (including adjusted
restructured loans) asset quality appears largely in line with domestic peers in our coverage.
FY12F: Slower loan growth, focus on liability mix
Loan growth was 21% yoy (+3% qoq) as of December 2010 and management is now guiding
for slower growth of about 14% in FY12. On the back of this revised guidance, we have cut
our loan growth estimates to 10% for FY11 and 14% for FY12 (from 16% earlier for both
years). Given the expected slower loan growth, the bank is aiming to slow deposit growth
and thus boost the proportion of low-cost deposits (current and savings accounts, or CASA).
The CASA ratio was 15.0% as of December 2010, which the bank is targeting to raise to
around 18% by March 2011. Given the rising interest rate environment and the bankís largely
wholesale-funded liability mix, we expect margins to be about 2.1% in FY12F (vs 1.9% in
FY11F).
Tough times ahead, but valuations appear attractive
On net profit, we cut FY11F by around 8% (largely due to muted other income and higher
provisions) and keep FY12F largely unchanged. In the long term, we expect traction in RoA
to continue. However, given the current rising interest rate scenario, we think the increase in
RoA and ROE could prove slower than we had earlier anticipated. We therefore reduce our
sustainable ROE assumption from 17.5% to 16.0%, resulting in our SOTP-based target price
falling to Rs181 (from Rs211). The stock trades at 1.2x FY12F adjusted book value and 7.4x
earnings, which we believe are attractive valuations. Buy
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