Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Indian Overseas Bank (IOB)
Banks/Financial Institutions
Perfect quarter on all fronts. IOB had one of its best quarters ever with considerable
improvement witnessed over all fronts (1) margins expanded by 25 bps qoq to 3.25%
on the back of declining costs, (2) asset quality improved sharply on the back of lower
slippages (less than 1%) and higher recoveries, and (3) loan growth was higher than
industry at 14% qoq. IOB looks to have entered into a strong positive cycle of loan
growth and declining provisions resulting in higher earnings growth. Valuations at 0.8X
FY2012E PBR and 5X PER remain attractive for RoEs of 16%. BUY.
Sharp improvement in asset quality; provision coverage improves to 65%
IOB delivered a strong quarter on asset quality with lower slippages and net NPL declining 16%
qoq. Provision coverage stands at 65% compared to 60% in September 2010, with the regulatory
requirement of 70% quite comfortably achievable in 4QFY11E. Gross NPL declined by 2% qoq to
`33 bn (3.3% of loans) while net NPL declined 16% to `15 bn (1.5% of loans). Slippages for the
quarter were at 0.8% compared to 3.7% in 2Q and 1.8% in 1Q. Slippages are likely to be a bit
volatile for the bank given the focus on corporates but overall trends on slippages is getting
comfortable. Lower write-offs at `930 mn gives more confidence to the underlying asset quality.
Loan loss provisions remained high at 1.4% of loans as the bank utilized the strong income to
improve coverage ratios. We continue to build conservative loan loss provisions assumptions in
FY2012-13E of 0.7% of loans (higher recovery can result in lower provisions for FY2012E).
Focus to shift towards loan growth from managing asset quality trends
Loan growth trends are becoming very encouraging with the quarter witnessing one of the
strongest growth of 14% qoq (26% yoy), the highest amongst banks that have reported so far.
There seems to be a s decisive shift towards balance sheet expansion having slowed down in the
past 6 quarters to manage the rising slippages. YTD growth is already at 24% yoy. The bank needs
to focus on its liability profile—deposits grew by 18% yoy (6% qoq) but CASA ratio declined to
31%. CD ratio for the quarter increased sharply to 80% compared to 75% in September 2010.
Margins expand 25 bps qoq to 3.3% with cost of funds declining qoq
Net interest income (NII) in 3QFY11 increased by 18% qoq (42% yoy) to `11.3 bn, 18% ahead of
our estimates, resulting in NIMs to expand by 25 bps qoq to 3.3%. A combination of expansion in
CD ratio, higher lending yields, lower slippages and declining cost of funds resulted in the margin
expansion. While we remain positive on the bank’s margin outlook, we prefer being cautious
building a decline of about 15 bps in FY2012E.
Other operational highlights of the quarter
Cost-income ratio declined to 46% compared to 50% in the previous quarter. The bank
has been providing `330 mn/quarter for second pension over the past two years and the
bank is looking to complete the shortfall in three years. However, we believe that this
shortfall is likely to be higher as nearly 8,400 employees have opted for the plan and we
estimate the liability to be higher at `10-12 bn. Gratuity provision shortfall is about `460
mn which is likely to be provided in the current year.
Tier-1 capital is at 7.3% with overall capital adequacy ratio at 13.5%.
Non-interest income growth was strong at 36% yoy driven by higher income from
recoveries (88% yoy) and fee income (19% yoy). Treasury income was subdued at `229
mn for the quarter.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Indian Overseas Bank (IOB)
Banks/Financial Institutions
Perfect quarter on all fronts. IOB had one of its best quarters ever with considerable
improvement witnessed over all fronts (1) margins expanded by 25 bps qoq to 3.25%
on the back of declining costs, (2) asset quality improved sharply on the back of lower
slippages (less than 1%) and higher recoveries, and (3) loan growth was higher than
industry at 14% qoq. IOB looks to have entered into a strong positive cycle of loan
growth and declining provisions resulting in higher earnings growth. Valuations at 0.8X
FY2012E PBR and 5X PER remain attractive for RoEs of 16%. BUY.
Sharp improvement in asset quality; provision coverage improves to 65%
IOB delivered a strong quarter on asset quality with lower slippages and net NPL declining 16%
qoq. Provision coverage stands at 65% compared to 60% in September 2010, with the regulatory
requirement of 70% quite comfortably achievable in 4QFY11E. Gross NPL declined by 2% qoq to
`33 bn (3.3% of loans) while net NPL declined 16% to `15 bn (1.5% of loans). Slippages for the
quarter were at 0.8% compared to 3.7% in 2Q and 1.8% in 1Q. Slippages are likely to be a bit
volatile for the bank given the focus on corporates but overall trends on slippages is getting
comfortable. Lower write-offs at `930 mn gives more confidence to the underlying asset quality.
Loan loss provisions remained high at 1.4% of loans as the bank utilized the strong income to
improve coverage ratios. We continue to build conservative loan loss provisions assumptions in
FY2012-13E of 0.7% of loans (higher recovery can result in lower provisions for FY2012E).
Focus to shift towards loan growth from managing asset quality trends
Loan growth trends are becoming very encouraging with the quarter witnessing one of the
strongest growth of 14% qoq (26% yoy), the highest amongst banks that have reported so far.
There seems to be a s decisive shift towards balance sheet expansion having slowed down in the
past 6 quarters to manage the rising slippages. YTD growth is already at 24% yoy. The bank needs
to focus on its liability profile—deposits grew by 18% yoy (6% qoq) but CASA ratio declined to
31%. CD ratio for the quarter increased sharply to 80% compared to 75% in September 2010.
Margins expand 25 bps qoq to 3.3% with cost of funds declining qoq
Net interest income (NII) in 3QFY11 increased by 18% qoq (42% yoy) to `11.3 bn, 18% ahead of
our estimates, resulting in NIMs to expand by 25 bps qoq to 3.3%. A combination of expansion in
CD ratio, higher lending yields, lower slippages and declining cost of funds resulted in the margin
expansion. While we remain positive on the bank’s margin outlook, we prefer being cautious
building a decline of about 15 bps in FY2012E.
Other operational highlights of the quarter
Cost-income ratio declined to 46% compared to 50% in the previous quarter. The bank
has been providing `330 mn/quarter for second pension over the past two years and the
bank is looking to complete the shortfall in three years. However, we believe that this
shortfall is likely to be higher as nearly 8,400 employees have opted for the plan and we
estimate the liability to be higher at `10-12 bn. Gratuity provision shortfall is about `460
mn which is likely to be provided in the current year.
Tier-1 capital is at 7.3% with overall capital adequacy ratio at 13.5%.
Non-interest income growth was strong at 36% yoy driven by higher income from
recoveries (88% yoy) and fee income (19% yoy). Treasury income was subdued at `229
mn for the quarter.
No comments:
Post a Comment