IDBI-- Multiple stresses::Macquarie Research,

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IDBI
Multiple stresses
Event
 IDBI reported 1Q12 PAT of Rs3.4bn, much below our estimate of Rs5.1bn.
The shortfall, we believe, was mainly due to high provisions. Earning continue
to face headwinds and we have reduced our earnings estimates for FY12-14
by 2–6% and TP to Rs115 from Rs130 earlier. Maintain Underperform.
Impact
 Asset quality continues to be disappointing. Delinquencies remain high at
1.6% of loans. The NPLs were spread across sectors, with no large one-offs.
IDBI’s low provisioning coverage excluding technical write-offs at 41% means
that provision expense remains high. Credit cost of Rs3.6bn was higher than
our expectation. The stresses on the portfolio remain; in 1Q12, there were
some large restructurings amounting to Rs4bn.
 CASA falls sharply. NIM, aided by interest on income tax refund, was flat
QoQ at 2.1%. Adjusted for income tax refund interest income, it was down
~10bp QoQ. While this was better than our expectation, the underlying
movement in low-cost deposits is worrying, in our view. The bank’s CASA
ratio declined 360bp to 17.3%, easily the lowest in our coverage. The last few
quarters saw significant accretion in savings accounts, as the bank made a
focussed attempt to attract such accounts. However, we believe, the efforts
have been offset by the attraction of high term deposit rates in 1Q12. Thus
deposits in savings accounts actually reduced 2% QoQ even as term deposits
were up 7%QoQ.
 Loan growth was sluggish at 14.5% YoY, contracting 1%QoQ.  Large
corporate lending, forming two-thirds of loans, grew only 7% YoY. Growth was
mainly driven by retail, which was up 49%YoY.
 Poor fee growth. Core fee was down 16% YoY. We believe this is largely
due to slowing loan growth, particularly project finance, and likely would
remain under pressure. The company also booked a trading loss of Rs350m
in 1Q12.
Earnings and target price revision
 We have cut our EPS estimates for FY12-14E by 2-6%, to factor in lower loan
growth and higher provisions partially offset by higher NIMs. Our TP reduces
to Rs115 from Rs130, driven by lower ROE even as we roll-over to FY13E
valuations.
Price catalyst
 12-month price target: Rs115.00 based on a Sum of Parts methodology.
 Catalyst: Pressure on NIMs and asset quality in 2Q12E
Action and recommendation
 Return ratios remain poor, and are likely to remain under pressure. We
maintain Underperform.