Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
FY12 loan growth to be modest driven by shift in credit profile
Having grown advances ahead of the system in the past two years (23%
CAGR), we believe that Central Bank’s loan growth could be lower in the
current fiscal. In Q1 FY12, loan book contracted by 4% qoq making it
difficult for the bank to catch-up with the system in weakening credit
demand scenario. Further, Central Bank is in the process of shifting its
credit profile from the large and mid corporate segment (64% of
advances) to retail and SME segments. Objectives behind this strategy
being diversification of portfolio and structurally improving the loan yield.
NIM to stabilize after correcting sharply in Q1 FY12
A significant improvement in deposit profile (decline in share of bulk
deposits) drove substantial margin improvement (140bps) in FY11. In Q1
FY12, NIM corrected by 50bps qoq to 3% due to increase in CoD, decline
in investment yield and material correction in the C/D ratio. Central Bank
raised its Base Rate by 75bps on August 1st which should support
improvement in loan yield. CASA recovery and shedding of high-cost bulk
deposits should largely offset the impact of higher retail term deposits
cost. Hence, NIM is likely to stabilize near 3% in near-to-medium term.
NII would grow behind loan growth in FY12 due to margin decline.
Asset quality to worsen further keeping credit cost elevated
Central Bank has seen high slippages in recent quarters with the
annualized delinquency ratio near 2%. Unlike other PSU banks, these
slippages were not driven by transition to system recognition of NPLs. The
bank started this exercise meaningfully from Q2 FY11. This implies that
elevated delinquencies would continue in ensuing quarters. The
challenging macro environment would only exacerbate asset quality
deterioration. We estimate FY12 delinquency ratio at 1.6% against bank’s
aggressive expectation of 1.3-1.5%. Credit cost is estimated to increase
to 0.9-1% in FY12 and FY13. We expect 39% CAGR in LLP over FY11-13.
Further valuation de-rating likely; initiate coverage with SELL
We expect Central Bank to underperform Bankex over the next six
months. On the grid of the two key concerns haunting the sector viz
slowing credit growth and asset quality deterioration, Central Bank ranks
much higher than peers. Further, bank’s RoA would remain comparatively
lower (0.7-0.8%) even after the anticipated improvement. Though
valuation appears cheap both in absolute terms (0.8x FY13 P/adj.BV) and
relative terms (15-20% discount to peers), it could de-rate further as
macro challenges intensify. Expected poor performance in the next two
quarters would also be an overhang. We initiate coverage on Central
Bank with a SELL rating and 9-month price target of Rs94.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
FY12 loan growth to be modest driven by shift in credit profile
Having grown advances ahead of the system in the past two years (23%
CAGR), we believe that Central Bank’s loan growth could be lower in the
current fiscal. In Q1 FY12, loan book contracted by 4% qoq making it
difficult for the bank to catch-up with the system in weakening credit
demand scenario. Further, Central Bank is in the process of shifting its
credit profile from the large and mid corporate segment (64% of
advances) to retail and SME segments. Objectives behind this strategy
being diversification of portfolio and structurally improving the loan yield.
NIM to stabilize after correcting sharply in Q1 FY12
A significant improvement in deposit profile (decline in share of bulk
deposits) drove substantial margin improvement (140bps) in FY11. In Q1
FY12, NIM corrected by 50bps qoq to 3% due to increase in CoD, decline
in investment yield and material correction in the C/D ratio. Central Bank
raised its Base Rate by 75bps on August 1st which should support
improvement in loan yield. CASA recovery and shedding of high-cost bulk
deposits should largely offset the impact of higher retail term deposits
cost. Hence, NIM is likely to stabilize near 3% in near-to-medium term.
NII would grow behind loan growth in FY12 due to margin decline.
Asset quality to worsen further keeping credit cost elevated
Central Bank has seen high slippages in recent quarters with the
annualized delinquency ratio near 2%. Unlike other PSU banks, these
slippages were not driven by transition to system recognition of NPLs. The
bank started this exercise meaningfully from Q2 FY11. This implies that
elevated delinquencies would continue in ensuing quarters. The
challenging macro environment would only exacerbate asset quality
deterioration. We estimate FY12 delinquency ratio at 1.6% against bank’s
aggressive expectation of 1.3-1.5%. Credit cost is estimated to increase
to 0.9-1% in FY12 and FY13. We expect 39% CAGR in LLP over FY11-13.
Further valuation de-rating likely; initiate coverage with SELL
We expect Central Bank to underperform Bankex over the next six
months. On the grid of the two key concerns haunting the sector viz
slowing credit growth and asset quality deterioration, Central Bank ranks
much higher than peers. Further, bank’s RoA would remain comparatively
lower (0.7-0.8%) even after the anticipated improvement. Though
valuation appears cheap both in absolute terms (0.8x FY13 P/adj.BV) and
relative terms (15-20% discount to peers), it could de-rate further as
macro challenges intensify. Expected poor performance in the next two
quarters would also be an overhang. We initiate coverage on Central
Bank with a SELL rating and 9-month price target of Rs94.
No comments:
Post a Comment