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Return ratio improvement to take a while…
The initial investment phase of the bank (FY10) has started yielding fruit
(in FY11) and no major investments are expected in FY12E. The current
capacity created is capable of achieving business mix of | 30000-35000
crore, as per the management. This would enable the bank to report
higher PAT. The next leg of investment phase is expected to begin
thereafter, since the bank aims to reach a tally of 450-500 branches (275
currently) in the coming three or four years. We expect 59% CAGR in PAT
over FY10-13E to | 94 crore.
Loan growth concentrated around retail vertical in Q4FY11
The retail proportion of total loans, which was low at 16% in FY10 and
38% in Q3FY11, now contributes 41% in FY11. The share of relatively
low yielding wholesale banking dropped from 64% in FY10 to 39% in
FY11. This helped the bank to improve its yields and it reported NIM of
3% for Q4FY11. Hence, it was evident that the focus was on the retail
portfolio for FY11. For FY12E, the bank has guided for equitable growth
in the retail and SME segment. This should enable the bank to maintain
its NIM in FY12E. The fund raising planned in FY12E (to the tune of |
1000 crore) should enable it to improve its NIM from FY13E.
Asset quality improves, PCR extension sought
Stronger recoveries during the quarter led to a significant improvement
in asset quality. GNPA stood at 0.7% (| 67 crore against | 77 crore in
FY10), NNPA @ 0.3% (| 27 crore against | 42 crore in FY10). We expect
GNPA@ 1.1% and NNPA @0.5% in FY13E, considering faster growth.
Cost to income ratio to stay high
The CI ratio stood flat YoY at 83% in FY11. For Q4FY11, the ratio was
lower at 79% (improved by 550 bps YoY) as income growth was strong,
despite additional provision made towards the second pension option.
Also, the bank reduced its headcount by 89 QoQ to 4260. We expect the
CI ratio at 73% in FY13E.
Valuation
The bank is in a growth phase and equity dilution will impact the return
ratios during this period. We have valued the bank at 1.1x FY13E ABV to
arrive at a target price of | 140. The downside risk would be higher
operating cost and NPL additions, which could lead to lower profitability
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Return ratio improvement to take a while…
The initial investment phase of the bank (FY10) has started yielding fruit
(in FY11) and no major investments are expected in FY12E. The current
capacity created is capable of achieving business mix of | 30000-35000
crore, as per the management. This would enable the bank to report
higher PAT. The next leg of investment phase is expected to begin
thereafter, since the bank aims to reach a tally of 450-500 branches (275
currently) in the coming three or four years. We expect 59% CAGR in PAT
over FY10-13E to | 94 crore.
Loan growth concentrated around retail vertical in Q4FY11
The retail proportion of total loans, which was low at 16% in FY10 and
38% in Q3FY11, now contributes 41% in FY11. The share of relatively
low yielding wholesale banking dropped from 64% in FY10 to 39% in
FY11. This helped the bank to improve its yields and it reported NIM of
3% for Q4FY11. Hence, it was evident that the focus was on the retail
portfolio for FY11. For FY12E, the bank has guided for equitable growth
in the retail and SME segment. This should enable the bank to maintain
its NIM in FY12E. The fund raising planned in FY12E (to the tune of |
1000 crore) should enable it to improve its NIM from FY13E.
Asset quality improves, PCR extension sought
Stronger recoveries during the quarter led to a significant improvement
in asset quality. GNPA stood at 0.7% (| 67 crore against | 77 crore in
FY10), NNPA @ 0.3% (| 27 crore against | 42 crore in FY10). We expect
GNPA@ 1.1% and NNPA @0.5% in FY13E, considering faster growth.
Cost to income ratio to stay high
The CI ratio stood flat YoY at 83% in FY11. For Q4FY11, the ratio was
lower at 79% (improved by 550 bps YoY) as income growth was strong,
despite additional provision made towards the second pension option.
Also, the bank reduced its headcount by 89 QoQ to 4260. We expect the
CI ratio at 73% in FY13E.
Valuation
The bank is in a growth phase and equity dilution will impact the return
ratios during this period. We have valued the bank at 1.1x FY13E ABV to
arrive at a target price of | 140. The downside risk would be higher
operating cost and NPL additions, which could lead to lower profitability
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