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Uco Bank announced its 3QFY2011 results today, registering a robust growth in
net profit of 22.5% yoy and 152.7% qoq to `301cr, well above our estimates. This
was mainly because we had been factoring in one more quarter of cleaning up
on the NPA front. However, the bank reported ~`100cr lower NPA provisioning
than expected for 3QFY2011 and will meet the 4% shortfall (~`110cr) in
4QFY2011.We maintain our Neutral recommendation on the stock.
Healthy operating performance; lower slippages: Advances grew by 5.3% qoq
and 20.4% yoy, while deposits de-grew 0.2% qoq (up 16.0% yoy) during
3QFY2011. NII increased by 6.0% qoq (by strong 69.2% yoy). On the asset
quality front, although absolute Gross NPAs increased by 11.7% qoq to `2,300cr,
absolute Net NPAs decreased by 1.2% qoq to `993cr. Gross NPA ratio
deteriorated to 2.57% (2.39% in 2QFY2011), while Net NPA ratio improved to
1.13% (1.18% in 2QFY2011). The provision coverage ratio stood at 66.2%
(62.1% in 2QFY2011) including technical write-offs. The bank witnessed a decline
in slippages from `678cr 2QFY2011 to `452cr, implying annualised slippage
ratio of 2.2% (3.3% in 2QFY2011). The bank’s capital adequacy ratio (CAR)
stood at 13.02%.
Outlook and valuation: Structurally, the bank has had relatively higher exposure
to large corporates, low CASA of ~23% and low fee/assets. Going forward, we
expect the bank’s NIM to find support from increasing exposure to the SME and
retail segments, improving other income and moderating asset quality pressures,
aided by increasing recoveries. However, at the CMP, the stock is trading at 1.1x
FY2012E ABV, which we believe factors in positive directional improvement in
earnings quality. We maintain our Neutral recommendation on the stock.
Healthy advances growth, deposits de-grew sequentially
Advances increased by healthy 20.4% yoy and 5.3% qoq to `89,486cr, while
deposits de-grew 0.2% qoq (up 16.0% yoy) to `1, 20,758cr. As a result, the creditdeposit
ratio increased to 74.1% as against 70.2% in 2QFY2011. The key drivers
for growth in advances were corporate loans and agricultural loans, which grew by
35.9% and 24.6% yoy, respectively.
On the deposits side, CASA deposits registered a growth of 15.3% yoy. However
CASA ratio declined to 23.1% compared to 23.3% in 3QFY2010 and 23.9% in
1HFY2011.
Calculated NIMs increased to 3.06% from 2.98% in 2QFY2011 and 2.19% in
3QFY2010. Consequently, the bank’s NII increased by 6.0% qoq (by strong 69.2%
yoy) to `1,062cr (from `1002cr in 2QFY2011). Management expects to sustain
NIMs at 3%+ in 4QFY2011. However, going forward, the bank is expected to face
NIM pressure in a rising interest rate environment on account of its relatively low
CASA.
Non-interest income declines
Non-interest income declined by 6.6% qoq and 8.5% yoy to `214cr on the back of
lower treasury gains. Non-interest income, excluding treasury, increased by 15.9%
yoy to `197cr. The bank recorded lower treasury gain of `17cr during 3QFY2011.
Slippages came in lower sequentially
On the asset quality front, although absolute Gross NPAs increased by 11.7% qoq
to Rs2,300cr, absolute Net NPAs decreased by 1.2% qoq to Rs993cr. The Gross
NPA ratio deteriorated to 2.57% from 2.39% from 2QFY2011 while Net NPA ratio
improved to 1.13% from 1.18% in 2QFY2011. The provision coverage ratio
improved to 66.2% (from 62.1% in 2QFY2011) including technical write-offs.
The bank has to increase the same to 70% by March 2011.
The bank witnessed lower slippages to `452cr (`678cr in 2QFY2011), implying an
annualised slippage ratio of 2.2% as compared to 3.3% in 2QFY2011.
The bank’s total amount of restructured advances stood at `6,367cr during the
quarter, forming 7.1% of advances and 104% of net worth.
Operating costs under controlDuring the quarter, operating costs declined by 3.0% qoq (up 27.9% yoy) to
`511cr. Staff cost declined by 4.9% qoq, while other expenses increased by 2.1%
qoq. As a result of healthy operating performance, the cost-to-income ratio
improved to 40.0% in 3QFY2011 from 42.8% in 2QFY2011 and 46.4% in
3QFY2010.
As per management, second pension liability is estimated to be `850-1,000cr, out
of which ~`125cr was provided in 9MFY2011 (~`53cr in 3QFY2011). The
pension provisions have been accounted for in the provisioning line item.
During the quarter, the bank opened 9 branches, taking its total branch network to
2,167. Total number of ATMs stood at 563, of which 35 were added during the
quarter. The bank’s entire branch network is already under CBS.
Low core Tier-I capital
As per Basel-II norms, the bank’s capital adequacy ratio (CAR) was comfortable at
13.0%, though the tier-I component was low at 7.5%. The government
shareholding in the bank stands at 63.6%, indicating the headroom available for
raising tier-I capital. However, management indicated that it has shelved plans to
raise equity capital, since the government has already supported the bank with
`673cr of preference share capital in the current financial year.
Investment arguments
Improvement in core profitability
The bank had relatively lower NIM of 1.9% in FY2010 due to low CASA ratio of
~25% and high exposure to relatively low-yielding corporate loans, which
constituted 69% of its total loan book. While reported NIM has risen to 3.1% in
3QFY2011 due to a decline in cost of wholesale deposits, going forward, an
increase in retail and SME loans is expected to partly stem the fall in NIM due to
rising deposit rates. We have factored in NIM (calculated) of 2.9% and 2.6% for
FY2011 and FY2012, respectively. Moreover, management has guided for an
improvement in other income on account of revision in charges, higher recoveries
from written-off accounts and more active treasury operations going forward.
Improvement in operating environment to lower credit cost
The bank's Gross and Net NPAs stood at 2.6% and 1.1% respectively, in
3QFY2011, with cumulative restructured advances at `6,367cr (7.1% of loans,
104% of net worth). However, with an improved economic environment, we expect
strong recoveries and lower slippages going forward, which is expected to result in
a decline in provisioning expense, as a percentage of average assets, from 1.0% in
FY2011 to 0.4% for FY2012, after taking into account the increase in provision
coverage to 70%.
Outlook and valuation
Structurally, the bank has had relatively higher exposure to large corporates, low
CASA of ~23% and low fee/assets. Going forward, we expect the bank’s NIM to
find support from increasing exposure to the SME and retail segments,
improving other income and moderating asset quality pressures, aided by
increasing recoveries. However, at the CMP, the stock is trading at 1.1x FY2012E
ABV, which we believe factors in positive directional improvement in earnings
quality. We maintain our Neutral recommendation on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Uco Bank – 3QFY2011 Result Update
Angel Broking maintains a Neutral on Uco Bank.
Uco Bank announced its 3QFY2011 results today, registering a robust growth in
net profit of 22.5% yoy and 152.7% qoq to `301cr, well above our estimates. This
was mainly because we had been factoring in one more quarter of cleaning up
on the NPA front. However, the bank reported ~`100cr lower NPA provisioning
than expected for 3QFY2011 and will meet the 4% shortfall (~`110cr) in
4QFY2011.We maintain our Neutral recommendation on the stock.
Healthy operating performance; lower slippages: Advances grew by 5.3% qoq
and 20.4% yoy, while deposits de-grew 0.2% qoq (up 16.0% yoy) during
3QFY2011. NII increased by 6.0% qoq (by strong 69.2% yoy). On the asset
quality front, although absolute Gross NPAs increased by 11.7% qoq to `2,300cr,
absolute Net NPAs decreased by 1.2% qoq to `993cr. Gross NPA ratio
deteriorated to 2.57% (2.39% in 2QFY2011), while Net NPA ratio improved to
1.13% (1.18% in 2QFY2011). The provision coverage ratio stood at 66.2%
(62.1% in 2QFY2011) including technical write-offs. The bank witnessed a decline
in slippages from `678cr 2QFY2011 to `452cr, implying annualised slippage
ratio of 2.2% (3.3% in 2QFY2011). The bank’s capital adequacy ratio (CAR)
stood at 13.02%.
Outlook and valuation: Structurally, the bank has had relatively higher exposure
to large corporates, low CASA of ~23% and low fee/assets. Going forward, we
expect the bank’s NIM to find support from increasing exposure to the SME and
retail segments, improving other income and moderating asset quality pressures,
aided by increasing recoveries. However, at the CMP, the stock is trading at 1.1x
FY2012E ABV, which we believe factors in positive directional improvement in
earnings quality. We maintain our Neutral recommendation on the stock.
Healthy advances growth, deposits de-grew sequentially
Advances increased by healthy 20.4% yoy and 5.3% qoq to `89,486cr, while
deposits de-grew 0.2% qoq (up 16.0% yoy) to `1, 20,758cr. As a result, the creditdeposit
ratio increased to 74.1% as against 70.2% in 2QFY2011. The key drivers
for growth in advances were corporate loans and agricultural loans, which grew by
35.9% and 24.6% yoy, respectively.
On the deposits side, CASA deposits registered a growth of 15.3% yoy. However
CASA ratio declined to 23.1% compared to 23.3% in 3QFY2010 and 23.9% in
1HFY2011.
Calculated NIMs increased to 3.06% from 2.98% in 2QFY2011 and 2.19% in
3QFY2010. Consequently, the bank’s NII increased by 6.0% qoq (by strong 69.2%
yoy) to `1,062cr (from `1002cr in 2QFY2011). Management expects to sustain
NIMs at 3%+ in 4QFY2011. However, going forward, the bank is expected to face
NIM pressure in a rising interest rate environment on account of its relatively low
CASA.
Non-interest income declines
Non-interest income declined by 6.6% qoq and 8.5% yoy to `214cr on the back of
lower treasury gains. Non-interest income, excluding treasury, increased by 15.9%
yoy to `197cr. The bank recorded lower treasury gain of `17cr during 3QFY2011.
Slippages came in lower sequentially
On the asset quality front, although absolute Gross NPAs increased by 11.7% qoq
to Rs2,300cr, absolute Net NPAs decreased by 1.2% qoq to Rs993cr. The Gross
NPA ratio deteriorated to 2.57% from 2.39% from 2QFY2011 while Net NPA ratio
improved to 1.13% from 1.18% in 2QFY2011. The provision coverage ratio
improved to 66.2% (from 62.1% in 2QFY2011) including technical write-offs.
The bank has to increase the same to 70% by March 2011.
The bank witnessed lower slippages to `452cr (`678cr in 2QFY2011), implying an
annualised slippage ratio of 2.2% as compared to 3.3% in 2QFY2011.
The bank’s total amount of restructured advances stood at `6,367cr during the
quarter, forming 7.1% of advances and 104% of net worth.
Operating costs under controlDuring the quarter, operating costs declined by 3.0% qoq (up 27.9% yoy) to
`511cr. Staff cost declined by 4.9% qoq, while other expenses increased by 2.1%
qoq. As a result of healthy operating performance, the cost-to-income ratio
improved to 40.0% in 3QFY2011 from 42.8% in 2QFY2011 and 46.4% in
3QFY2010.
As per management, second pension liability is estimated to be `850-1,000cr, out
of which ~`125cr was provided in 9MFY2011 (~`53cr in 3QFY2011). The
pension provisions have been accounted for in the provisioning line item.
During the quarter, the bank opened 9 branches, taking its total branch network to
2,167. Total number of ATMs stood at 563, of which 35 were added during the
quarter. The bank’s entire branch network is already under CBS.
Low core Tier-I capital
As per Basel-II norms, the bank’s capital adequacy ratio (CAR) was comfortable at
13.0%, though the tier-I component was low at 7.5%. The government
shareholding in the bank stands at 63.6%, indicating the headroom available for
raising tier-I capital. However, management indicated that it has shelved plans to
raise equity capital, since the government has already supported the bank with
`673cr of preference share capital in the current financial year.
Investment arguments
Improvement in core profitability
The bank had relatively lower NIM of 1.9% in FY2010 due to low CASA ratio of
~25% and high exposure to relatively low-yielding corporate loans, which
constituted 69% of its total loan book. While reported NIM has risen to 3.1% in
3QFY2011 due to a decline in cost of wholesale deposits, going forward, an
increase in retail and SME loans is expected to partly stem the fall in NIM due to
rising deposit rates. We have factored in NIM (calculated) of 2.9% and 2.6% for
FY2011 and FY2012, respectively. Moreover, management has guided for an
improvement in other income on account of revision in charges, higher recoveries
from written-off accounts and more active treasury operations going forward.
Improvement in operating environment to lower credit cost
The bank's Gross and Net NPAs stood at 2.6% and 1.1% respectively, in
3QFY2011, with cumulative restructured advances at `6,367cr (7.1% of loans,
104% of net worth). However, with an improved economic environment, we expect
strong recoveries and lower slippages going forward, which is expected to result in
a decline in provisioning expense, as a percentage of average assets, from 1.0% in
FY2011 to 0.4% for FY2012, after taking into account the increase in provision
coverage to 70%.
Outlook and valuation
Structurally, the bank has had relatively higher exposure to large corporates, low
CASA of ~23% and low fee/assets. Going forward, we expect the bank’s NIM to
find support from increasing exposure to the SME and retail segments,
improving other income and moderating asset quality pressures, aided by
increasing recoveries. However, at the CMP, the stock is trading at 1.1x FY2012E
ABV, which we believe factors in positive directional improvement in earnings
quality. We maintain our Neutral recommendation on the stock.
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