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IDBI Bank -Consolidation: profitability at cost of growth?
Muted business growth of 12% YoY (flat QoQ), sluggish CASA
mobilisation, high NIM at 2.28%, lower employee costs, higher credit
costs due to GNPA rising 22% QOQ (provision for NPA at | 490 crore) and
deferred tax credit of | 278 crore all led to higher than expected profit of |
454 crore (58% YoY jump) for IDBI Bank in Q3FY11. Deposits de-grew 3%
QoQ (inched up 5% YoY) to | 1,50,239 crore, advances rose 21% (3%
QoQ) to | 134491 crore leading to NII rising 68% YoY (3% QoQ) to | 1204
crore and NIM being maintained high QoQ at 2.28%. The bank is
consolidating with the aim of increasing its CASA, which is currently flat
QoQ at 15% to 18% by March and 20% by FY12E. Moreover, since it plans
to reduce its current bulk deposit share (at ~ 65%), it aims to slow down
the loan book growth to 10% for FY11E (focusing on infrastructure sector
disbursements and priority sector lending). We expect consolidation in
FY12E leading to 12% CAGR in the business mix over FY10-12E.
Lower employee costs, deferred tax credit aid NII growth to boost PAT
Employee costs declined to | 166 crore, a decline of 52% QoQ on a higher
base due to provision for gratuity being provided fully in Q2FY11. However,
the bank expects opex to rise, going forward, as it increases its branch
network from the current 771 to ~900 by the end of FY11 and to 1000 in the
next quarter. Moreover, deferred tax credit of | 278 crore boosted profit
further leading to PAT shooting up 58% YoY to | 454 crore.
Slippages from SME hammer asset quality, credit cost increases…
GNPA rose 22% QoQ to | 3021 crore (GNPA ratio up 34 bps QoQ to 2.2%)
after sliding 6% in Q2FY11 with gross slippages of | 690 crore emanating
mostly from the SME segment, settlements of | 30 crore and upgradations
of | 117 crore. NNPA, however, rose only 4% QoQ to | 1610 crore (NNPA
ratio flat QoQ at 1.2%) as the bank made a hefty provisioning for NPA of |
490 crore. Consequently, the PCR stands at 75.6%. We expect slippages to
stay high and estimate GNPA @2.1% and NNPA @ 0.9% for FY12E.
Valuation
Even though the consolidation phase lowered targeted growth, it increased
NIM and returns for the bank. However, we believe NIM will come under
pressure in Q4FY11 as costs rise and estimate NIM of 1.8% to 1.9% for
FY11E. Our major concerns are opportunity cost of lower business growth,
no frills, zero transaction charges and asset quality. Hence, we value the
bank’s core business at 1.2x FY12E ABV and ascribe | 26 to its investment
book arriving at a fair value target of | 160.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IDBI Bank -Consolidation: profitability at cost of growth?
Muted business growth of 12% YoY (flat QoQ), sluggish CASA
mobilisation, high NIM at 2.28%, lower employee costs, higher credit
costs due to GNPA rising 22% QOQ (provision for NPA at | 490 crore) and
deferred tax credit of | 278 crore all led to higher than expected profit of |
454 crore (58% YoY jump) for IDBI Bank in Q3FY11. Deposits de-grew 3%
QoQ (inched up 5% YoY) to | 1,50,239 crore, advances rose 21% (3%
QoQ) to | 134491 crore leading to NII rising 68% YoY (3% QoQ) to | 1204
crore and NIM being maintained high QoQ at 2.28%. The bank is
consolidating with the aim of increasing its CASA, which is currently flat
QoQ at 15% to 18% by March and 20% by FY12E. Moreover, since it plans
to reduce its current bulk deposit share (at ~ 65%), it aims to slow down
the loan book growth to 10% for FY11E (focusing on infrastructure sector
disbursements and priority sector lending). We expect consolidation in
FY12E leading to 12% CAGR in the business mix over FY10-12E.
Lower employee costs, deferred tax credit aid NII growth to boost PAT
Employee costs declined to | 166 crore, a decline of 52% QoQ on a higher
base due to provision for gratuity being provided fully in Q2FY11. However,
the bank expects opex to rise, going forward, as it increases its branch
network from the current 771 to ~900 by the end of FY11 and to 1000 in the
next quarter. Moreover, deferred tax credit of | 278 crore boosted profit
further leading to PAT shooting up 58% YoY to | 454 crore.
Slippages from SME hammer asset quality, credit cost increases…
GNPA rose 22% QoQ to | 3021 crore (GNPA ratio up 34 bps QoQ to 2.2%)
after sliding 6% in Q2FY11 with gross slippages of | 690 crore emanating
mostly from the SME segment, settlements of | 30 crore and upgradations
of | 117 crore. NNPA, however, rose only 4% QoQ to | 1610 crore (NNPA
ratio flat QoQ at 1.2%) as the bank made a hefty provisioning for NPA of |
490 crore. Consequently, the PCR stands at 75.6%. We expect slippages to
stay high and estimate GNPA @2.1% and NNPA @ 0.9% for FY12E.
Valuation
Even though the consolidation phase lowered targeted growth, it increased
NIM and returns for the bank. However, we believe NIM will come under
pressure in Q4FY11 as costs rise and estimate NIM of 1.8% to 1.9% for
FY11E. Our major concerns are opportunity cost of lower business growth,
no frills, zero transaction charges and asset quality. Hence, we value the
bank’s core business at 1.2x FY12E ABV and ascribe | 26 to its investment
book arriving at a fair value target of | 160.
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