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INDIAN BANK
7 RECOMMENDATION: BUY
TARGET PRICE: RS.320
FY12E P/E: 5.1X, P/ABV: 1.2X
Q4FY11 Results: NII and Net profit came ahead of expectation on
back of strong margins and lower pension provisions. Asset quality
remained stable with healthy PCR (84.3%; including tech w/o).
Reiterate BUY.
q Indian bank reported strong earnings - NII grew 21.8% on back of strong
margins (3.86% in Q4FY11) & healthy loan growth (20.9% YoY). Margin
came ahead of our expectation as yield on assets rose by 59 bps (QoQ) as
against only 30 bps rise in cost of deposits. Lower pension provisions
further aided the net profit growth (7.0% YoY to Rs.4.4 bn), which again
came above our expectations.
q Although bank revised its pension liability to Rs.9.62 bn (>3x its earlier
estimate of Rs.2.94 bn till Q3FY11), opex came below our expectations
(C/D ratio at 34.7% in Q4FY11). It has also provided Rs.1.48 bn towards
retired employee deficit, in line with recent regulatory guidance.
q Asset quality has remained stable with gross and net NPA at 0.98% and
0.53%, respectively. NPA coverage ratio is also at comfortable level
(84.3% including technical w/o).
q We have slightly tweaked our earnings estimate for FY12E and maintain
BUY on the stock with target price of Rs.320. At target price, stock will
trade at 1.5x of its FY12E adjusted book value.
Reported strong earnings, led by sturdy margins and lower pension
provisions
Indian bank reported strong earnings - NII grew 21.8% to Rs.11.11 bn in Q4FY11 on
back of strong margins (3.86% in Q4FY11) & healthy loan growth (20.9% YoY).
Margin came ahead of our expectation as yield on assets rose by 59 bps (QoQ) as
against only 30 bps rise in cost of deposits.
Lower pension provisions and lower credit costs further aided the net profit growth
(7.0% YoY to Rs.4.4 bn); this again came above our expectations.
Loan growth slows down; focus has shifted to large corporate
during last few quarters.
Bank has slowed down its loan book growth in line with the system (20.9% YoY in
Q4FY11) as compared to 28-29% YoY growth witnessed in couple of previous quarters.
Corporate and agriculture segments were the main growth drivers which grew
at 26.3% and 20.8%, respectively. Although retail and MSME segments witnessed
moderate growth of 10.0% and 15.8%, respectively, retail segments saw some sequential
traction (5.1% QoQ growth).
During the same period, deposit growth also matched the overall loan growth. Total
deposits rose 19.9% YoY mainly on back of 22.2% growth in term deposits; CASA
growth was moderate at 15.1% (CASA mix declined ~2.0% QoQ). Q4FY11 also
witnessed lower incremental C/D ratio (37.7%) leading to 1.6% QoQ contraction in
LDR (C/D ratio).
NIM surprised positively; however we are modeling ~30 bps contraction
in FY12E
NIM came ahead of our expectation as yield on assets (calculated) rose by 59 bps
(QoQ) as against only 30 bps rise in cost of deposits (calculated). During Q4FY11,
NIM came at 3.86% as compared to 3.84% in Q3FY11 and 3.79% in Q4FY10. We
believe the hike in lending rates since December 2010 has more than compensated
the rise in cost of funds, as lending re-pricing occurs instantaneously whereas liability
re-pricing comes with a lag.
We expect NIM to come off from the current levels over next few quarters, as its
weak liability franchise will not be able to shield them from rising funding costs. We
are modeling around 30 bps contraction in NIM from 3.75% in FY11 to 3.56% in
FY12E.
Pension liability has been revised upward; also provided Rs.1.48
bn towards retired employee deficit
Although bank revised its pension liability to Rs.9.62 bn (>3x its earlier estimate of
Rs.2.94 bn till Q3FY11), opex came below our expectations (C/D ratio at 34.7% in
Q4FY11). This revised number includes Rs.8.13 bn for existing employees and
Rs.1.48 bn for retired employees. Its gratuity liability has remained constant at
Rs.1.66 bn.
During Q4FY11, bank has used the excess provision of Rs.1.5 bn and rest Rs.1.6 bn
for second pension option and Rs.332 mn towards gratuity has been charged
through P&L. This includes Rs.1.48 bn provided during Q4FY11 towards retired employee
deficit, in line with the recent regulatory guidance. Unrecognised pension
fund liability carried forward is Rs.6.5 bn which would be amortised over next four
years
Stable asset quality; NPA coverage ratio comfortable at 84.3%
Asset quality has remained stable with gross and net NPA at 0.98% and 0.53%,
respectively at the end of Q4FY11. In absolute terms, gross NPA and net NPA declined
by 1.6% and 4.8%, respectively.
Bank had reported sharp spike in NPAs during Q1FY11, when it migrated to system
based NPA recognition method. Now, this system is helping them in tracking distress
accounts on day to day basis. NPA coverage ratio is also at comfortable level
(84.3% including technical w/o).
Valuations and recommendation
At the current market price of Rs.247, the stock is trading at 5.1x its FY12E earnings
and 1.2x its FY12E ABV. We have slightly tweaked our earnings estimate for FY12E
and now expect net profit for FY12E to be Rs.20.72 bn. This would result into an EPS
of Rs.48.2 and adjusted book value to be Rs.213.0.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
INDIAN BANK
7 RECOMMENDATION: BUY
TARGET PRICE: RS.320
FY12E P/E: 5.1X, P/ABV: 1.2X
Q4FY11 Results: NII and Net profit came ahead of expectation on
back of strong margins and lower pension provisions. Asset quality
remained stable with healthy PCR (84.3%; including tech w/o).
Reiterate BUY.
q Indian bank reported strong earnings - NII grew 21.8% on back of strong
margins (3.86% in Q4FY11) & healthy loan growth (20.9% YoY). Margin
came ahead of our expectation as yield on assets rose by 59 bps (QoQ) as
against only 30 bps rise in cost of deposits. Lower pension provisions
further aided the net profit growth (7.0% YoY to Rs.4.4 bn), which again
came above our expectations.
q Although bank revised its pension liability to Rs.9.62 bn (>3x its earlier
estimate of Rs.2.94 bn till Q3FY11), opex came below our expectations
(C/D ratio at 34.7% in Q4FY11). It has also provided Rs.1.48 bn towards
retired employee deficit, in line with recent regulatory guidance.
q Asset quality has remained stable with gross and net NPA at 0.98% and
0.53%, respectively. NPA coverage ratio is also at comfortable level
(84.3% including technical w/o).
q We have slightly tweaked our earnings estimate for FY12E and maintain
BUY on the stock with target price of Rs.320. At target price, stock will
trade at 1.5x of its FY12E adjusted book value.
Reported strong earnings, led by sturdy margins and lower pension
provisions
Indian bank reported strong earnings - NII grew 21.8% to Rs.11.11 bn in Q4FY11 on
back of strong margins (3.86% in Q4FY11) & healthy loan growth (20.9% YoY).
Margin came ahead of our expectation as yield on assets rose by 59 bps (QoQ) as
against only 30 bps rise in cost of deposits.
Lower pension provisions and lower credit costs further aided the net profit growth
(7.0% YoY to Rs.4.4 bn); this again came above our expectations.
Loan growth slows down; focus has shifted to large corporate
during last few quarters.
Bank has slowed down its loan book growth in line with the system (20.9% YoY in
Q4FY11) as compared to 28-29% YoY growth witnessed in couple of previous quarters.
Corporate and agriculture segments were the main growth drivers which grew
at 26.3% and 20.8%, respectively. Although retail and MSME segments witnessed
moderate growth of 10.0% and 15.8%, respectively, retail segments saw some sequential
traction (5.1% QoQ growth).
During the same period, deposit growth also matched the overall loan growth. Total
deposits rose 19.9% YoY mainly on back of 22.2% growth in term deposits; CASA
growth was moderate at 15.1% (CASA mix declined ~2.0% QoQ). Q4FY11 also
witnessed lower incremental C/D ratio (37.7%) leading to 1.6% QoQ contraction in
LDR (C/D ratio).
NIM surprised positively; however we are modeling ~30 bps contraction
in FY12E
NIM came ahead of our expectation as yield on assets (calculated) rose by 59 bps
(QoQ) as against only 30 bps rise in cost of deposits (calculated). During Q4FY11,
NIM came at 3.86% as compared to 3.84% in Q3FY11 and 3.79% in Q4FY10. We
believe the hike in lending rates since December 2010 has more than compensated
the rise in cost of funds, as lending re-pricing occurs instantaneously whereas liability
re-pricing comes with a lag.
We expect NIM to come off from the current levels over next few quarters, as its
weak liability franchise will not be able to shield them from rising funding costs. We
are modeling around 30 bps contraction in NIM from 3.75% in FY11 to 3.56% in
FY12E.
Pension liability has been revised upward; also provided Rs.1.48
bn towards retired employee deficit
Although bank revised its pension liability to Rs.9.62 bn (>3x its earlier estimate of
Rs.2.94 bn till Q3FY11), opex came below our expectations (C/D ratio at 34.7% in
Q4FY11). This revised number includes Rs.8.13 bn for existing employees and
Rs.1.48 bn for retired employees. Its gratuity liability has remained constant at
Rs.1.66 bn.
During Q4FY11, bank has used the excess provision of Rs.1.5 bn and rest Rs.1.6 bn
for second pension option and Rs.332 mn towards gratuity has been charged
through P&L. This includes Rs.1.48 bn provided during Q4FY11 towards retired employee
deficit, in line with the recent regulatory guidance. Unrecognised pension
fund liability carried forward is Rs.6.5 bn which would be amortised over next four
years
Stable asset quality; NPA coverage ratio comfortable at 84.3%
Asset quality has remained stable with gross and net NPA at 0.98% and 0.53%,
respectively at the end of Q4FY11. In absolute terms, gross NPA and net NPA declined
by 1.6% and 4.8%, respectively.
Bank had reported sharp spike in NPAs during Q1FY11, when it migrated to system
based NPA recognition method. Now, this system is helping them in tracking distress
accounts on day to day basis. NPA coverage ratio is also at comfortable level
(84.3% including technical w/o).
Valuations and recommendation
At the current market price of Rs.247, the stock is trading at 5.1x its FY12E earnings
and 1.2x its FY12E ABV. We have slightly tweaked our earnings estimate for FY12E
and now expect net profit for FY12E to be Rs.20.72 bn. This would result into an EPS
of Rs.48.2 and adjusted book value to be Rs.213.0.
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