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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
• We remain positive on India financials, despite a 15% sector rally since
late March. We do, however, recommend greater focus on stock picking
due to waning macro triggers and valuation support, and a few risks
(mainly oil) still hovering. Our top picks are ICICI and Yes.
• Curve steepening is done. We see little scope for short-term rates to fall
further - system liquidity is negative again and RBI hikes are now
imminent. Our rates team (Abhishek Panda) expects a short-term
“liquidity peak” in the week of 22 April, but sees the broad trend of
liquidity easing being over.
• 4Q results a non-event. We expect 33% y/y PAT growth (22%, ex-SBI)
for the sector in the results season beginning next week. These
backward-looking results are unlikely to drive stocks, given the decisive
change in the short–term rates since March. The key stocks - ICICI and
Yes (where margins will be closely watched).
• US investor feedback positive. Feedback from our recent marketing in
the US – a) the mood was positive and stocks, rather than macro, were
the focus b) a preference for private sector banks, very usual for the US,
remains and c) ICICI, Yes and NBFCs hogged most of the discussions –
surprisingly little interest in Axis.
• Oil remains a key risk. Crude prices are rising persistently and macro
risks are elevated with Brent at $122. Oil and Indian banks are usually
correlated, but strongly decouple for short periods. We think banks will
do well, despite high crude prices, if the economy remains resilient.
• ICICI and Yes the top picks. The drying up of macro triggers would
shift the focus to individual stocks. ICICI (with the scope to surprise on
NIMs and credit costs in the medium term) and Yes (which still trades at
a peer discount) remain our top picks in the space. We remain cautious
on PSUs, especially SBI.
4Q11E Preview
Strong profit growth: We expect sector net profit growth of ~33% y/y (5% q/q).
PPOP growth would be lower at ~16% y/y but ~20% y/y fall in credit costs would
lead to higher PAT growth. We estimate SBI’s profits will jump ~75% y/y given low
base and margin improvement, adjusting for which sector PAT growth would be
~22%.
Margins to moderate but credit costs to improve: We expect margins to moderate
for the sector by 5-10bps q/q, with ~10bps q/q moderation for the PSU banks and
marginal moderation for the private names ex HDFCB/IIB (flat margins). We expect
credit costs will continue to remain robust for private banks but we expect mixed
trends for PSUs given coverage ramp-up for SBI and continuing slippages for PNB.
What to watch out for: Private banks- Margin pressure and sustenance of asset
quality trends will be key trends to monitor. Asset quality has been improving for
private banks and the market expects positive trend to continue. For PSU banks,
margin pressure could be back ended in 1HFY12 but asset quality would be the key
metric to watch out for in 4Q11, as expectations is for an improvement in slippages
trend for large PSUs ex-PNB.
Key results: ICICI Bank: Margins and loan growth – We expect ~5bps margin
moderation and ~18.5% y/y loan growth. Axis bank: Asset quality improved in
3Q11 but margins are expected to moderate- we factor in ~10bps in 4Q11.SBI: Asset
quality is expected to improve but teaser loan provisions and coverage build up could
impact profit growth.
Key Winners: ICICI: Loan growth momentum to continue and credit costs would
continue to remain low. IndusInd: PAT growth of 64% y/y driven by strong all
round performance. Key disappointments: PNB: Slippages expected to remain high
in 4Q11 v/s improvement expected for other PSUs.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
• We remain positive on India financials, despite a 15% sector rally since
late March. We do, however, recommend greater focus on stock picking
due to waning macro triggers and valuation support, and a few risks
(mainly oil) still hovering. Our top picks are ICICI and Yes.
• Curve steepening is done. We see little scope for short-term rates to fall
further - system liquidity is negative again and RBI hikes are now
imminent. Our rates team (Abhishek Panda) expects a short-term
“liquidity peak” in the week of 22 April, but sees the broad trend of
liquidity easing being over.
• 4Q results a non-event. We expect 33% y/y PAT growth (22%, ex-SBI)
for the sector in the results season beginning next week. These
backward-looking results are unlikely to drive stocks, given the decisive
change in the short–term rates since March. The key stocks - ICICI and
Yes (where margins will be closely watched).
• US investor feedback positive. Feedback from our recent marketing in
the US – a) the mood was positive and stocks, rather than macro, were
the focus b) a preference for private sector banks, very usual for the US,
remains and c) ICICI, Yes and NBFCs hogged most of the discussions –
surprisingly little interest in Axis.
• Oil remains a key risk. Crude prices are rising persistently and macro
risks are elevated with Brent at $122. Oil and Indian banks are usually
correlated, but strongly decouple for short periods. We think banks will
do well, despite high crude prices, if the economy remains resilient.
• ICICI and Yes the top picks. The drying up of macro triggers would
shift the focus to individual stocks. ICICI (with the scope to surprise on
NIMs and credit costs in the medium term) and Yes (which still trades at
a peer discount) remain our top picks in the space. We remain cautious
on PSUs, especially SBI.
4Q11E Preview
Strong profit growth: We expect sector net profit growth of ~33% y/y (5% q/q).
PPOP growth would be lower at ~16% y/y but ~20% y/y fall in credit costs would
lead to higher PAT growth. We estimate SBI’s profits will jump ~75% y/y given low
base and margin improvement, adjusting for which sector PAT growth would be
~22%.
Margins to moderate but credit costs to improve: We expect margins to moderate
for the sector by 5-10bps q/q, with ~10bps q/q moderation for the PSU banks and
marginal moderation for the private names ex HDFCB/IIB (flat margins). We expect
credit costs will continue to remain robust for private banks but we expect mixed
trends for PSUs given coverage ramp-up for SBI and continuing slippages for PNB.
What to watch out for: Private banks- Margin pressure and sustenance of asset
quality trends will be key trends to monitor. Asset quality has been improving for
private banks and the market expects positive trend to continue. For PSU banks,
margin pressure could be back ended in 1HFY12 but asset quality would be the key
metric to watch out for in 4Q11, as expectations is for an improvement in slippages
trend for large PSUs ex-PNB.
Key results: ICICI Bank: Margins and loan growth – We expect ~5bps margin
moderation and ~18.5% y/y loan growth. Axis bank: Asset quality improved in
3Q11 but margins are expected to moderate- we factor in ~10bps in 4Q11.SBI: Asset
quality is expected to improve but teaser loan provisions and coverage build up could
impact profit growth.
Key Winners: ICICI: Loan growth momentum to continue and credit costs would
continue to remain low. IndusInd: PAT growth of 64% y/y driven by strong all
round performance. Key disappointments: PNB: Slippages expected to remain high
in 4Q11 v/s improvement expected for other PSUs.
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