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In FY11, IDBI Bank improved its ROA by 20bp to 73bp due to better asset yields and lower
cost of funds. Going forward, slower loan growth and its focus on low cost deposits will likely
improve ROA to 0.9% in FY12F. Valuations seem attractive and we maintain our Buy rating
on the stock.
4QFY11 core earnings largely in line; lower provisions aid net profit
Net interest income (NII) rose 46% yoy (down 8% qoq) on the back of 14% yoy loan growth
(+17% qoq) and 83bp yoy improvement in net interest margins (-18bp down qoq). Thus loan
growth was largely back ended in FY11. Core fee income rose 26% yoy, which was a
pleasant surprise. The provision for bad loans fell steeply qoq to about 10bp in 4QFY11 due
to improved asset quality. Reported gross NPLs fell 8% qoq in 4QFY11.
FY11: ROA improved 20bp on the back of higher NIMs
Reported net interest margin rose about 80bp yoy to 2.1% in FY11, largely driven by
improved liability mix and asset yield. The savings deposits balance grew by 59% yoy while
current deposits grew by 51% yoy. The cost of liabilities fell 38bp yoy, while asset yield
increased 12bp yoy. The increase in net interest income was partly offset by lower treasury
gains in FY11. On balance, reported RoA improved 20bp yoy to 0.73% in FY11.
FY12F: Focus on improving liability mix and slower loan growth
According to the management, the key focus in the medium term is to improve the liability
mix and slow loan growth. The bank targets to increase the proportion of low cost deposits
(CASA) to 25% by March 2012 (21% as of March 2011). Further, the bank will slow loan
growth to about 10-12% yoy in FY12F (about 14% yoy in FY11). On balance, management
targets to improve RoAs further to 0.9% in FY12.
Improvement on track; Valuations remain cheap
We increase FY12 net profit forecasts by about 8%, largely driven by lower NPL provisions and
roll out FY14 forecasts. In FY12, we estimate the ROA at about 83-84bp and believe it will remain
largely stable thereafter. Thus, earnings growth after FY12F will likely be in line with asset growth.
We continue to value IDBI Bank using the Gordon growth model and add the value of its stakes in
NSE and CARE to arrive at a target price of Rs181.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
In FY11, IDBI Bank improved its ROA by 20bp to 73bp due to better asset yields and lower
cost of funds. Going forward, slower loan growth and its focus on low cost deposits will likely
improve ROA to 0.9% in FY12F. Valuations seem attractive and we maintain our Buy rating
on the stock.
4QFY11 core earnings largely in line; lower provisions aid net profit
Net interest income (NII) rose 46% yoy (down 8% qoq) on the back of 14% yoy loan growth
(+17% qoq) and 83bp yoy improvement in net interest margins (-18bp down qoq). Thus loan
growth was largely back ended in FY11. Core fee income rose 26% yoy, which was a
pleasant surprise. The provision for bad loans fell steeply qoq to about 10bp in 4QFY11 due
to improved asset quality. Reported gross NPLs fell 8% qoq in 4QFY11.
FY11: ROA improved 20bp on the back of higher NIMs
Reported net interest margin rose about 80bp yoy to 2.1% in FY11, largely driven by
improved liability mix and asset yield. The savings deposits balance grew by 59% yoy while
current deposits grew by 51% yoy. The cost of liabilities fell 38bp yoy, while asset yield
increased 12bp yoy. The increase in net interest income was partly offset by lower treasury
gains in FY11. On balance, reported RoA improved 20bp yoy to 0.73% in FY11.
FY12F: Focus on improving liability mix and slower loan growth
According to the management, the key focus in the medium term is to improve the liability
mix and slow loan growth. The bank targets to increase the proportion of low cost deposits
(CASA) to 25% by March 2012 (21% as of March 2011). Further, the bank will slow loan
growth to about 10-12% yoy in FY12F (about 14% yoy in FY11). On balance, management
targets to improve RoAs further to 0.9% in FY12.
Improvement on track; Valuations remain cheap
We increase FY12 net profit forecasts by about 8%, largely driven by lower NPL provisions and
roll out FY14 forecasts. In FY12, we estimate the ROA at about 83-84bp and believe it will remain
largely stable thereafter. Thus, earnings growth after FY12F will likely be in line with asset growth.
We continue to value IDBI Bank using the Gordon growth model and add the value of its stakes in
NSE and CARE to arrive at a target price of Rs181.
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