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Indian Bank (INBK)
Banks/Financial Institutions
Strong asset quality was the key hallmark for the quarter. Indian Bank’s 1QFY12
earnings of `4.1 bn were driven by lower provisions as slippages were lower at 1%
levels. Post the transition exercise on reporting NPLs in 1QFY11, slippages have been
within comfortable levels of 1.0-1.5%, which is impressive. While margins declined by
40 bps qoq – it still remains comfortable at 3.4% levels. Valuations are attractive at 1X
FY2012E book and 6X EPS for RoEs at 20% levels. Maintain BUY with TP of `300.
Post transition slippages are at 1.5% levels; maintain BUY
It have been four quarters since Indian Bank moved reporting NPLs without any manual
intervention and slippages post this transition have been impressive though marginally above its
own trend levels. Since 2QFY11 slippages are easing, having declined from 1.9% levels to 0.9%
currently, impressive when compared to peers. NIMs, despite having declined by 40 bps qoq, are
healthy at 3.4% levels. Also, the bank is now growing in line with industry average as against
30% levels till 3QFY11 despite slippages trends being at extremely comfortable levels. We believe
that the bank is inexpensive at current levels of 1X FY2012E book and 5X EPS for its strong RoAs
of 1.3% levels and RoEs of over 20%. We factor a slower loan growth of 18% CAGR for FY2011-
13E along with 30 bps decline in margins. We maintain our BUY rating with TP of `300.
Growth in line with industry average; CASA ratio declines 100 bps qoq to 31%
Indian Bank’s loans grew in line with industry average at 21% yoy qoq, slowing down the pace of
growth from 30% yoy levels reported since December 2011. Sequential growth was higher at 9%
qoq but we believe that this could be due to one-off opportunities as the bulk of the loan growth
in the current quarter has been in the large corporate segment. Retail, SME and agriculture loans
grew by 10-12% yoy, a cautious and positive approach in this environment and high cost of
deposits. Deposits grew by 21% yoy (2% qoq) with CASA ratio stable qoq at 31% levels.
Slippages below 1% levels - first time since December 2009
For the first time since December 2009, slippages declined below 1% in the current quarter
despite gross and net NPLs increasing qoq. Excluding any large slippages that could distort
analysis, trends in the past four quarters post the transition have not seen any sharp volatility –
though it remains higher than what the bank reported in previous years.
Gross NPLs increased 9% qoq to `8.1 bn (1% of loans) while net NPL increased 7% qoq `4.2 bn
(0.5% of loans). Provision coverage ratio was about 49% (including write-off was flat qoq at 84%)
compared to 47% in March 2011. Loan loss provisions were lower at 70 bps (annualized) as the
bank made additional provisions to meet regulatory guidelines on NPLs/restructured loans.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Indian Bank (INBK)
Banks/Financial Institutions
Strong asset quality was the key hallmark for the quarter. Indian Bank’s 1QFY12
earnings of `4.1 bn were driven by lower provisions as slippages were lower at 1%
levels. Post the transition exercise on reporting NPLs in 1QFY11, slippages have been
within comfortable levels of 1.0-1.5%, which is impressive. While margins declined by
40 bps qoq – it still remains comfortable at 3.4% levels. Valuations are attractive at 1X
FY2012E book and 6X EPS for RoEs at 20% levels. Maintain BUY with TP of `300.
Post transition slippages are at 1.5% levels; maintain BUY
It have been four quarters since Indian Bank moved reporting NPLs without any manual
intervention and slippages post this transition have been impressive though marginally above its
own trend levels. Since 2QFY11 slippages are easing, having declined from 1.9% levels to 0.9%
currently, impressive when compared to peers. NIMs, despite having declined by 40 bps qoq, are
healthy at 3.4% levels. Also, the bank is now growing in line with industry average as against
30% levels till 3QFY11 despite slippages trends being at extremely comfortable levels. We believe
that the bank is inexpensive at current levels of 1X FY2012E book and 5X EPS for its strong RoAs
of 1.3% levels and RoEs of over 20%. We factor a slower loan growth of 18% CAGR for FY2011-
13E along with 30 bps decline in margins. We maintain our BUY rating with TP of `300.
Growth in line with industry average; CASA ratio declines 100 bps qoq to 31%
Indian Bank’s loans grew in line with industry average at 21% yoy qoq, slowing down the pace of
growth from 30% yoy levels reported since December 2011. Sequential growth was higher at 9%
qoq but we believe that this could be due to one-off opportunities as the bulk of the loan growth
in the current quarter has been in the large corporate segment. Retail, SME and agriculture loans
grew by 10-12% yoy, a cautious and positive approach in this environment and high cost of
deposits. Deposits grew by 21% yoy (2% qoq) with CASA ratio stable qoq at 31% levels.
Slippages below 1% levels - first time since December 2009
For the first time since December 2009, slippages declined below 1% in the current quarter
despite gross and net NPLs increasing qoq. Excluding any large slippages that could distort
analysis, trends in the past four quarters post the transition have not seen any sharp volatility –
though it remains higher than what the bank reported in previous years.
Gross NPLs increased 9% qoq to `8.1 bn (1% of loans) while net NPL increased 7% qoq `4.2 bn
(0.5% of loans). Provision coverage ratio was about 49% (including write-off was flat qoq at 84%)
compared to 47% in March 2011. Loan loss provisions were lower at 70 bps (annualized) as the
bank made additional provisions to meet regulatory guidelines on NPLs/restructured loans.
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