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Indian Overseas Bank -Aggressive credit offtake propels profits…
IOB quickened its pace to catch up on lost ground in Q3FY11 with
business mix crossing the | 225,000 crore target for January 2011, posting
21% YoY growth with C-D ratio high at 80%. Advances grew a strong
26% YoY (14% QoQ) to | 100129 crore while deposits increased 18% YoY
(6% QoQ) to | 125,062 crore. However, CASA declined QoQ from 33% to
31% as term deposits grew faster than demand deposits. NII surged 42%
YoY (18% QoQ) to | 1130 crore with NIM up 25 bps QoQ at 3.27%. Other
income rose 36% YoY to | 351 crore (recoveries from written off accounts
to the tune of | 77 crore), abating its sluggish performance in past
quarters. Net profit grew a stellar 128% YoY (12% QoQ) to | 232 crore
despite higher provisions. Asset quality improved with GNPA and NNPA
declining 2% and 16% QoQ to | 3264 crore and | 1488 crore, respectively.
We expect a 25% CAGR in business mix to boost NII and PAT by 29%
CAGR and 48% CAGR, respectively, over FY10-12E.
Receding pressure on asset quality front…
GNPA ratio at 3.26% (down 52 bps QoQ) and NNPA ratio at 1.51% (down
53 bps QoQ) with provision coverage ratio improving from 60% in Q2FY11
to 65.4% in the current quarter reinforces our confidence in the steadily
improving asset quality. We expect GNPA of ~3.2% and NNPA of 1.1% by
FY12E. However, chances of windfall slippages would require a close watch
on recoveries.
Provisioning for gratuity and second pension option
The bank has already provided ~60% of second pension option with | 36
crore provided per month. The provision for gratuity has been estimated at
~| 145 crore with the bank providing | 12 crore per month for the same. It
is expected to fulfil this provision requirement by the end of FY12E. As this
exercise is continuous and widespread, we expect its burden to be
contained by the sustained rise in profitability.
Valuation
IOB is trading at 1x FY12E ABV at the CMP of | 130. We expect the bank to
earn healthy returns with RoA and RoE of 0.9% and 19.2% respectively by
FY12E on the back of strong business growth, sustained profitability and
healthy asset quality. Even though the bank is out of the woods,
considering the downward shift in target multiples across the banking
sector, we have lowered our target multiple to 1.1x FY12E ABV and value
the bank at | 154
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Indian Overseas Bank -Aggressive credit offtake propels profits…
IOB quickened its pace to catch up on lost ground in Q3FY11 with
business mix crossing the | 225,000 crore target for January 2011, posting
21% YoY growth with C-D ratio high at 80%. Advances grew a strong
26% YoY (14% QoQ) to | 100129 crore while deposits increased 18% YoY
(6% QoQ) to | 125,062 crore. However, CASA declined QoQ from 33% to
31% as term deposits grew faster than demand deposits. NII surged 42%
YoY (18% QoQ) to | 1130 crore with NIM up 25 bps QoQ at 3.27%. Other
income rose 36% YoY to | 351 crore (recoveries from written off accounts
to the tune of | 77 crore), abating its sluggish performance in past
quarters. Net profit grew a stellar 128% YoY (12% QoQ) to | 232 crore
despite higher provisions. Asset quality improved with GNPA and NNPA
declining 2% and 16% QoQ to | 3264 crore and | 1488 crore, respectively.
We expect a 25% CAGR in business mix to boost NII and PAT by 29%
CAGR and 48% CAGR, respectively, over FY10-12E.
Receding pressure on asset quality front…
GNPA ratio at 3.26% (down 52 bps QoQ) and NNPA ratio at 1.51% (down
53 bps QoQ) with provision coverage ratio improving from 60% in Q2FY11
to 65.4% in the current quarter reinforces our confidence in the steadily
improving asset quality. We expect GNPA of ~3.2% and NNPA of 1.1% by
FY12E. However, chances of windfall slippages would require a close watch
on recoveries.
Provisioning for gratuity and second pension option
The bank has already provided ~60% of second pension option with | 36
crore provided per month. The provision for gratuity has been estimated at
~| 145 crore with the bank providing | 12 crore per month for the same. It
is expected to fulfil this provision requirement by the end of FY12E. As this
exercise is continuous and widespread, we expect its burden to be
contained by the sustained rise in profitability.
Valuation
IOB is trading at 1x FY12E ABV at the CMP of | 130. We expect the bank to
earn healthy returns with RoA and RoE of 0.9% and 19.2% respectively by
FY12E on the back of strong business growth, sustained profitability and
healthy asset quality. Even though the bank is out of the woods,
considering the downward shift in target multiples across the banking
sector, we have lowered our target multiple to 1.1x FY12E ABV and value
the bank at | 154
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