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India Banks
2Q12 Preview: Slow But Steady
Still Slow But Steady: 9% profit growth (+11% ex-SBI) — We estimate 9% yoy profit
growth for Indian banks in 2Q12 (+11% ex-SBI vs +18% in 1Q12), reflecting a
moderation in underlying growth. PPOP growth (ex-trading gains) should also be
slower at 12% yoy, the lowest for two years. Operationally, we expect net interest
margins (largely flat qoq) and loan growth (+20% yoy) to stabilize. However, lower fee
growth, weak investment portfolios and stubborn credit costs should drag profitability
down. Private banks should remain healthy, outpacing PSU banks (+21% earnings
growth for private vs +1% for PSU) on lower credit costs, better NIMs and loan growth.
Key Trends to Watch — Operating trends to monitor: a) Asset quality: all eyes are
firmly on this with pressures mounting but we expect overall credit costs to remain
stable qoq (private banks still better than PSU) – but watch for commentary on
deterioration in SME/restructuring in power; b) NIMs are under pressure, and should
remain in a tight range; we expect flat qoq, better NIM protection for stronger deposit
franchises; c) Bond markdowns: volatile rates, expect some losses, though lower qoq;
d) Loan growth is largely stable (+20% yoy), but moderating; and e) Fee income should
remain well below asset growth. Overall, a slower quarter, but moderation should be
more visible in earnings than in balance sheets.
Key Stocks to Focus on — Mainly on large caps: a) Axis – NIMs should recover with
seasonal asset pricing catch-up, though some increase in credit costs is a possible
negative; b) ICICI Bank – expect stable margins and growth, credit costs likely to be
lower; c) SBI – asset quality the key, lot of weakness expected (and priced in), watch
for management guidance on NPLs, NIMs likely to remain stable and high; d) HDFC
Bank – steady growth, margins and credit costs, no surprises expected as usual.
Sector View: Heightened global risks, remain cautious near term — While the
sector has underperformed sharply, high global uncertainty increases risks on absolute
valuations. Will remain cautious near term (HDBK, Kotak most defensive), seeking
relative value in stronger deposit franchises medium term (Axis, SBI, ICICI Bank)
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Banks
2Q12 Preview: Slow But Steady
Still Slow But Steady: 9% profit growth (+11% ex-SBI) — We estimate 9% yoy profit
growth for Indian banks in 2Q12 (+11% ex-SBI vs +18% in 1Q12), reflecting a
moderation in underlying growth. PPOP growth (ex-trading gains) should also be
slower at 12% yoy, the lowest for two years. Operationally, we expect net interest
margins (largely flat qoq) and loan growth (+20% yoy) to stabilize. However, lower fee
growth, weak investment portfolios and stubborn credit costs should drag profitability
down. Private banks should remain healthy, outpacing PSU banks (+21% earnings
growth for private vs +1% for PSU) on lower credit costs, better NIMs and loan growth.
Key Trends to Watch — Operating trends to monitor: a) Asset quality: all eyes are
firmly on this with pressures mounting but we expect overall credit costs to remain
stable qoq (private banks still better than PSU) – but watch for commentary on
deterioration in SME/restructuring in power; b) NIMs are under pressure, and should
remain in a tight range; we expect flat qoq, better NIM protection for stronger deposit
franchises; c) Bond markdowns: volatile rates, expect some losses, though lower qoq;
d) Loan growth is largely stable (+20% yoy), but moderating; and e) Fee income should
remain well below asset growth. Overall, a slower quarter, but moderation should be
more visible in earnings than in balance sheets.
Key Stocks to Focus on — Mainly on large caps: a) Axis – NIMs should recover with
seasonal asset pricing catch-up, though some increase in credit costs is a possible
negative; b) ICICI Bank – expect stable margins and growth, credit costs likely to be
lower; c) SBI – asset quality the key, lot of weakness expected (and priced in), watch
for management guidance on NPLs, NIMs likely to remain stable and high; d) HDFC
Bank – steady growth, margins and credit costs, no surprises expected as usual.
Sector View: Heightened global risks, remain cautious near term — While the
sector has underperformed sharply, high global uncertainty increases risks on absolute
valuations. Will remain cautious near term (HDBK, Kotak most defensive), seeking
relative value in stronger deposit franchises medium term (Axis, SBI, ICICI Bank)
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