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Canara Bank's 1QFY12 numbers were below expectations, led by disappointing performance on the asset quality front.
NIM declined ~45bp QoQ to 2.4%, led by higher slippages and increase in cost of deposits. Key highlights:
Slippages continue to disappoint: Slippages remained high at INR13.7b (annualized slippage ratio of 2.6% v/s
4.3% in 4QFY11) - a key disappointment. The management specified that of the total slippages, INR6.6b is on
account of migration to system-based NPA recognition.
GNPA up 17% QoQ: In absolute terms, GNPA was up 17% QoQ, while NNPA was up 22% QoQ. In percentage
terms, GNPA increased to 1.7% from 1.5% in 4QFY11. PCR (including technical write-offs) declined 350bp QoQ to
~70% (against 73% a quarter ago and 78% a year ago).
Sharp contraction in NIM QoQ: In 1QFY12, NIM declined ~45bp QoQ (after 30bp QoQ decline in 4QFY11) to
2.4%, despite equity infusion of INR20b in the latter part of 4QFY11. The sharp increase in slippages led to interest
income reversal (INR2.1b), impacting NIM by ~25bp. Further, cost of deposits increased 83bp QoQ whereas yield on
loans improved just 59bp QoQ, adversely impacting NIM.
CASA ratio declines 290bp QoQ: CASA deposits declined 8% QoQ to INR761b, led by 38% QoQ declined in CA
deposits. SA deposits grew 4% QoQ and 14% YoY to INR609b. CASA ratio (calculated) declined 290bp to 25.4%.
Valuation and view: Stress on asset quality is hurting NIM, leading us to downgrade our earnings estimates for
FY12/13 by ~15%. Volatile asset quality performance, weak liability side with CASA ratio of ~25%, and higher proportion
of bulk deposits remain big concerns. On the back of high growth and leverage, RoE would remain strong at ~19% in
FY12 and FY13. However, we expect RoA to decline from 1.3% a quarter ago to 1%. The stock trades at 4.9x FY13E
EPS and 0.9x FY13E BV. We believe current valuations largely factor in the negatives. Maintain Buy.
Slippages continue to disappoint
Slippages remained high at INR13.7b (annualized slippage ratio of 2.6% v/s 4.3% in
4QFY11). The bank has already shifted its portfolio above INR0.2m (~92% of overall
portfolio) to CBS for NPA recognition; INR6.6b of slippage was on account of it. The
management guided that slippages are likely to remain high in 2QFY12 too, as it will move
to 100% CBS recognition of NPA. However, it expects strong recoveries and upgradations
to provide cushion to asset quality in 2HFY12. Credit cost for the quarter was 0.5% v/s
1.1% in 4QFY11 and 0.3% in 1QFY11.
GNPA up 17% QoQ; restructured loan book at ~4%
In absolute terms, GNPA grew 17% QoQ, whereas NNPA grew 22%. In percentage
terms, GNPA increased to 1.7% v/s 1.5% a quarter ago. PCR (including technical writeoffs)
declined to ~70% (from 73% a quarter ago and 78% a year ago). The bank
restructured fresh loans worth INR4.2b (~20bp of loans) during 1QFY12. Outstanding
restructured book stood at INR85b (~4% of loan book), and cumulatively, restructured
loans of INR6.8b (8% of outstanding restructured book) have slipped into NPA. Of the
outstanding restructured book, ~61% was from large corporate ~9% was from SME,
~7% from agri, and ~6% from housing.
Sharp QoQ contraction in NIM
In 1QFY12, NIM declined ~45bp QoQ (after 30bp QoQ decline in 4QFY11) to 2.4%,
despite equity infusion of INR20b in the latter part of 4QFY11. Sharp increase in slippages
led to interest income reversal (INR2.1b), impacting NIM by ~25bp. Further, cost of
deposits increased 83bp QoQ whereas yield on loans improved 59bp QoQ, adversely
impacting NIM. Cost of deposits for 1QFY12 stood at 7% as against 5.8% in FY11,
whereas yield on loans stood at 10.5% v/s 9.73% in FY11. The management expects
margins to improve from hereon, as it believes that the cost of deposits has peaked while
the benefits of loan re-pricing would continue.
Business growth moderates; CASA ratio declines 290bp QoQ
Loans grew 24% YoY (largely flat QoQ) to INR2.1t, whereas deposits grew 26% YoY
and ~2% QoQ to INR3t. CD ratio moderated to 71.6% as against 72.3% a quarter ago.
CASA declined 8% QoQ to INR761b, led by 38% QoQ decline in CA deposits. SA deposits
grew 4% QoQ and 14% YoY to INR609b. As a result, CASA ratio (calculated) declined
sharply by 290bp to 25.4%. The proportion of bulk deposits was around 32%.
Fee income growth remains muted
Non-interest income was 13% below our estimate, led by loss on sale of investments and
muted fee income growth. CEB grew 6% YoY to INR1.7b, while forex income grew 29%
YoY to INR960m. The bank had a treasury loss of INR770m as against treasury gain of
INR2.2b in 1QFY11. Recoveries from written-off accounts stood at INR663m as against
INR880m in 1QFY11 and INR3.3b a quarter ago.
Valuation and view
Stress on asset quality is hurting NIM, leading us to downgrade our earnings estimates for
FY12/13 by ~15%. Volatile asset quality performance, weak liability side with CASA ratio
of ~25%, and higher proportion of bulk deposits remain big concerns. We have modeled
~40bp margin compression (despite capital infusion of ~INR20b, which would improve
margins by ~5bp). With the bank moving to 100% system-based NPA recognition, slippages
are likely to remain high in 2QFY12, as well. We model in slippage ratio of 2.2% v/s 2.1%
in FY11. We model in credit cost of 60bp in FY12 v/s 52bp in FY11.
On the back of high growth and leverage, RoE would remain strong at ~19% in FY12 and
FY13. However, we expect RoA to decline from 1.3% a quarter ago to 1%. BV is likely
to be INR477 in FY12 and INR563 in FY13. The stock trades at 4.9x FY13E EPS and
0.9x FY13E BV. We believe current valuations largely factor in the negatives. Maintain
Buy, with a target price of INR600 (1.2x FY13E ABV).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Canara Bank's 1QFY12 numbers were below expectations, led by disappointing performance on the asset quality front.
NIM declined ~45bp QoQ to 2.4%, led by higher slippages and increase in cost of deposits. Key highlights:
Slippages continue to disappoint: Slippages remained high at INR13.7b (annualized slippage ratio of 2.6% v/s
4.3% in 4QFY11) - a key disappointment. The management specified that of the total slippages, INR6.6b is on
account of migration to system-based NPA recognition.
GNPA up 17% QoQ: In absolute terms, GNPA was up 17% QoQ, while NNPA was up 22% QoQ. In percentage
terms, GNPA increased to 1.7% from 1.5% in 4QFY11. PCR (including technical write-offs) declined 350bp QoQ to
~70% (against 73% a quarter ago and 78% a year ago).
Sharp contraction in NIM QoQ: In 1QFY12, NIM declined ~45bp QoQ (after 30bp QoQ decline in 4QFY11) to
2.4%, despite equity infusion of INR20b in the latter part of 4QFY11. The sharp increase in slippages led to interest
income reversal (INR2.1b), impacting NIM by ~25bp. Further, cost of deposits increased 83bp QoQ whereas yield on
loans improved just 59bp QoQ, adversely impacting NIM.
CASA ratio declines 290bp QoQ: CASA deposits declined 8% QoQ to INR761b, led by 38% QoQ declined in CA
deposits. SA deposits grew 4% QoQ and 14% YoY to INR609b. CASA ratio (calculated) declined 290bp to 25.4%.
Valuation and view: Stress on asset quality is hurting NIM, leading us to downgrade our earnings estimates for
FY12/13 by ~15%. Volatile asset quality performance, weak liability side with CASA ratio of ~25%, and higher proportion
of bulk deposits remain big concerns. On the back of high growth and leverage, RoE would remain strong at ~19% in
FY12 and FY13. However, we expect RoA to decline from 1.3% a quarter ago to 1%. The stock trades at 4.9x FY13E
EPS and 0.9x FY13E BV. We believe current valuations largely factor in the negatives. Maintain Buy.
Slippages continue to disappoint
Slippages remained high at INR13.7b (annualized slippage ratio of 2.6% v/s 4.3% in
4QFY11). The bank has already shifted its portfolio above INR0.2m (~92% of overall
portfolio) to CBS for NPA recognition; INR6.6b of slippage was on account of it. The
management guided that slippages are likely to remain high in 2QFY12 too, as it will move
to 100% CBS recognition of NPA. However, it expects strong recoveries and upgradations
to provide cushion to asset quality in 2HFY12. Credit cost for the quarter was 0.5% v/s
1.1% in 4QFY11 and 0.3% in 1QFY11.
GNPA up 17% QoQ; restructured loan book at ~4%
In absolute terms, GNPA grew 17% QoQ, whereas NNPA grew 22%. In percentage
terms, GNPA increased to 1.7% v/s 1.5% a quarter ago. PCR (including technical writeoffs)
declined to ~70% (from 73% a quarter ago and 78% a year ago). The bank
restructured fresh loans worth INR4.2b (~20bp of loans) during 1QFY12. Outstanding
restructured book stood at INR85b (~4% of loan book), and cumulatively, restructured
loans of INR6.8b (8% of outstanding restructured book) have slipped into NPA. Of the
outstanding restructured book, ~61% was from large corporate ~9% was from SME,
~7% from agri, and ~6% from housing.
Sharp QoQ contraction in NIM
In 1QFY12, NIM declined ~45bp QoQ (after 30bp QoQ decline in 4QFY11) to 2.4%,
despite equity infusion of INR20b in the latter part of 4QFY11. Sharp increase in slippages
led to interest income reversal (INR2.1b), impacting NIM by ~25bp. Further, cost of
deposits increased 83bp QoQ whereas yield on loans improved 59bp QoQ, adversely
impacting NIM. Cost of deposits for 1QFY12 stood at 7% as against 5.8% in FY11,
whereas yield on loans stood at 10.5% v/s 9.73% in FY11. The management expects
margins to improve from hereon, as it believes that the cost of deposits has peaked while
the benefits of loan re-pricing would continue.
Business growth moderates; CASA ratio declines 290bp QoQ
Loans grew 24% YoY (largely flat QoQ) to INR2.1t, whereas deposits grew 26% YoY
and ~2% QoQ to INR3t. CD ratio moderated to 71.6% as against 72.3% a quarter ago.
CASA declined 8% QoQ to INR761b, led by 38% QoQ decline in CA deposits. SA deposits
grew 4% QoQ and 14% YoY to INR609b. As a result, CASA ratio (calculated) declined
sharply by 290bp to 25.4%. The proportion of bulk deposits was around 32%.
Fee income growth remains muted
Non-interest income was 13% below our estimate, led by loss on sale of investments and
muted fee income growth. CEB grew 6% YoY to INR1.7b, while forex income grew 29%
YoY to INR960m. The bank had a treasury loss of INR770m as against treasury gain of
INR2.2b in 1QFY11. Recoveries from written-off accounts stood at INR663m as against
INR880m in 1QFY11 and INR3.3b a quarter ago.
Valuation and view
Stress on asset quality is hurting NIM, leading us to downgrade our earnings estimates for
FY12/13 by ~15%. Volatile asset quality performance, weak liability side with CASA ratio
of ~25%, and higher proportion of bulk deposits remain big concerns. We have modeled
~40bp margin compression (despite capital infusion of ~INR20b, which would improve
margins by ~5bp). With the bank moving to 100% system-based NPA recognition, slippages
are likely to remain high in 2QFY12, as well. We model in slippage ratio of 2.2% v/s 2.1%
in FY11. We model in credit cost of 60bp in FY12 v/s 52bp in FY11.
On the back of high growth and leverage, RoE would remain strong at ~19% in FY12 and
FY13. However, we expect RoA to decline from 1.3% a quarter ago to 1%. BV is likely
to be INR477 in FY12 and INR563 in FY13. The stock trades at 4.9x FY13E EPS and
0.9x FY13E BV. We believe current valuations largely factor in the negatives. Maintain
Buy, with a target price of INR600 (1.2x FY13E ABV).
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