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India Equity Research Reports, IPO and Stock News
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Key Takeaways
Asset quality pressure to abate in 2HFY12
During 1QFY12, gross slippages were INR6.2b (annualized slippage ratio of 1.6%).
Higher slippages were led by the SME segment (~50% of total slippages) due to
sub-optimal backend processes.
While slippages could remain high in 2QFY12 as bank further improves its back-end
process it is expected to decline significantly in 2HFY12. Management has guide for
slippage ratio of 1.3-1.5% as against 1.4% in FY11.
Consolidating growth to improve balance sheet profile
IDBI Bank is focusing on reducing the proportion of bulk business and is accordingly
guiding loan book growth of 15% and deposit growth of 12-15%.
On the asset side, the focus would be on SME and retail housing loans, which are
relatively higher yielding, while on the liabilities side, the bank intends to focus
more on CASA deposits and retail term deposits.
IDBI Bank had introduced schemes such as waiver of minimum balance and service
charges, which bore fruitful results, with the bank adding 1.4m savings accounts in
the last one year. IDBI Bank expects CASA ratio to improve to 20% in FY12 and to
25% by FY13 from ~17% in 1QFY12.
Margins to trend upwards
In a favorable interest rate scenario, IDBI Bank has been able to gradually improve
its margins over the past three years from 0.4% in 1QFY09 to 2% in 1QFY12,
despite a large proportion of bulk business.
Going forward improving liability profile and increasing proportion of high yielding
loan would provide cushion to NIMs. Management has guided for NIM of 2.2% and
2.6% for FY12 and FY13 respectively as against 2.1% in FY11.
Other highlights
Fee income growth is likely to moderate to 12-15% on the back of moderation in
loan growth and higher base catching up.
The management targets RoA of 0.9% for FY12 and 1%+ for FY13.
Valuation and view
While IDBI Bank's NIM has improved from 1.3% in FY10 to 2%, it still remains one of
the lowest in the industry. The bank is in the process of restructuring its balance
sheet and is willing to sacrifice growth to improve profitability parameters. However,
in our view, the high share of bulk deposits and low CASA ratio remains a risk.
IDBI Bank has some strategic investments which we have not considered in our
valuations. The stock trades at 0.7x FY13E ABV. Neutral.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key Takeaways
Asset quality pressure to abate in 2HFY12
During 1QFY12, gross slippages were INR6.2b (annualized slippage ratio of 1.6%).
Higher slippages were led by the SME segment (~50% of total slippages) due to
sub-optimal backend processes.
While slippages could remain high in 2QFY12 as bank further improves its back-end
process it is expected to decline significantly in 2HFY12. Management has guide for
slippage ratio of 1.3-1.5% as against 1.4% in FY11.
Consolidating growth to improve balance sheet profile
IDBI Bank is focusing on reducing the proportion of bulk business and is accordingly
guiding loan book growth of 15% and deposit growth of 12-15%.
On the asset side, the focus would be on SME and retail housing loans, which are
relatively higher yielding, while on the liabilities side, the bank intends to focus
more on CASA deposits and retail term deposits.
IDBI Bank had introduced schemes such as waiver of minimum balance and service
charges, which bore fruitful results, with the bank adding 1.4m savings accounts in
the last one year. IDBI Bank expects CASA ratio to improve to 20% in FY12 and to
25% by FY13 from ~17% in 1QFY12.
Margins to trend upwards
In a favorable interest rate scenario, IDBI Bank has been able to gradually improve
its margins over the past three years from 0.4% in 1QFY09 to 2% in 1QFY12,
despite a large proportion of bulk business.
Going forward improving liability profile and increasing proportion of high yielding
loan would provide cushion to NIMs. Management has guided for NIM of 2.2% and
2.6% for FY12 and FY13 respectively as against 2.1% in FY11.
Other highlights
Fee income growth is likely to moderate to 12-15% on the back of moderation in
loan growth and higher base catching up.
The management targets RoA of 0.9% for FY12 and 1%+ for FY13.
Valuation and view
While IDBI Bank's NIM has improved from 1.3% in FY10 to 2%, it still remains one of
the lowest in the industry. The bank is in the process of restructuring its balance
sheet and is willing to sacrifice growth to improve profitability parameters. However,
in our view, the high share of bulk deposits and low CASA ratio remains a risk.
IDBI Bank has some strategic investments which we have not considered in our
valuations. The stock trades at 0.7x FY13E ABV. Neutral.
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