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UBS Investment Research
India Banking & Finance Sector
More of the same
„ Q2 FY12 preview: private banks to report better results
We think Q2 FY12 results could be an extension of the Q1 results with public
sector (PSU) banks continuing to witness higher slippages. Non-banking financial
companies (NBFC) are facing NIM pressure, while the private banks could show
stable performance. We estimate 10% net profit growth and 15% net interest
income growth YoY for the banks under our coverage. We think the key trends to
expect are: 1) gross slippages and restructuring should remain high for the PSU
banks, with stable asset quality for the private banks and NBFCs; 2) NIMs should
stay flat (slight improvement in some cases) due to lending rate hikes, while
NBFCs could face NIM pressure; 3) loan growth continues to be +20% in most
cases; and 4) slight mark-to-market (MTM) impact due to weak performance for
bonds and equities.
„ Buy Federal Bank, ICICI Bank, Axis; Sell BOI, PNB, and LICHF
We expect a NIM expansion of 10-15bp for Axis Bank as funding costs stabilise
and lending rates rose 75bp during the quarter. Federal Bank could record lower
non-performing loan (NPL) formation with its recovery efforts. We expect NIM
pressure to continue for LIC Housing (LICHF) even as growth remains strong
while slippages is expected to rise in case of Bank of India (BOI).
NBFCs
Performance among the NBFCs could diverge. We prefer the gold finance
companies. Loan growth for Manappuram Finance (MGFL) and LICHF should
remain strong, and we expect a slowdown in disbursements for Infrastructure
Development Finance (IDFC) and Shriram Transport Finance (SHTF) in light of
a weakening macro environment. NIMs for LICH/SHTF could decline 15-20bp
QoQ due to the lagged impact of liability re-pricing, while those for IDFC,
Power Finance (PFC) and Rural Electrification (REC) should be stable. PFC and
REC are likely to book extraordinary losses due to currency depreciation, which
we estimate at Rs2.5-3.0bn. LICHF might have one-time standard asset
provisions of Rs500-600m due to a regulation change in August (we have not
built this in our estimates as the company is seeking clarification from the
regulator). We do not expect a material deterioration in asset quality for any of
the NBFCs.
Quarterly expectations
Q ICICI Bank. We expect PAT to grow 18% YoY and 9% QoQ. NII could
remain flat QoQ (13% YoY growth) as we expect loan growth of 19% YoY
and flat QoQ margins of 2.6% in Q2. Asset quality is expected to remain
stable, which would keep NPL provisions lower than normalised levels of
70bp during the quarter. We are building in sluggish fee income growth of
5% YoY for the quarter.
Q Axis Bank. We expect PAT to grow 22% YoY and decline 5% QoQ.
Margins could improve 15bp QoQ to 3.4%, while loans could grow 26%
YoY and 6% QoQ. We are building in 75bp (annualised) loan loss
provisioning (LLP) in Q2 as we expect NPL additions to increase from a low
base of Q1.
Q SBI. PAT at Rs25.4bn should remain flat YoY, down 60% QoQ. We expect
margins to remain stable QoQ at 3.6%m while loans could grow 3% QoQ
and 17% YoY. NPL slippages are expected to remain high at Q1 levels of 3-
3.5% (annualised) of loans. We are building in an MTM loss of Rs5bn due to
increased bond yields and weak equity performance.
Q HDFC Bank. We expect PAT of Rs11.9bn (up 30% YoY) and NII of
Rs29.6bn (up 17% YoY). NIMs are expected to be stable at 4.2%, while we
expect loan growth of 17% YoY (higher base in H110). Asset quality should
remain stable with the provisioning trend maintained for higher coverage.
Q HDFC Ltd. We expect PAT of Rs9.3bn (up 15% YoY) with net operating
income of Rs14bn (up 13% YoY). We estimate loan growth of 20% YoY,
while spreads should be stable with steady wholesale rates. We expect
investment gains to improve QoQ with disbursement growth of 20%.
Q PNB. We expect PAT of Rs10bn (-7% YoY). Slippages could rise as the
bank transitions its loans with ticket sizes less than Rs50m to system-based
recognition. NIMs could decline 10bp QoQ to 3.7% as the re-pricing of term
deposits leads to a higher cost of deposits. We expect a 7% YoY decline in
profit due to lower margins and higher LLP.
Q Bank of Baroda (BoB). We expect PAT of Rs10.2bn (flat YoY). We expect
stable NIMs at 2.9% with loan growth of 25% YoY. We expect provisions to
rise QoQ with higher slippages during the quarter.
Q BOI. We expect PAT of Rs5.5bn (decline 11% YoY). High slippages should
persist. NIMs too could be impacted as a result of a reversal in interest
income and high funding costs. We expect loan growth of 21% YoY; we are
building in an MTM impact on account of adverse yield movements during
end-September. In overall, we expect a weak quarter.
Q Union Bank. We expect PAT of Rs4.9bn (up 9% YoY) and NII of Rs16.4bn
(up 7% YoY). NIMs are expected to be stable QoQ at 3.1%, with gross
slippages at Rs7-10bn (higher than in Q1); we expect loan growth of 20%
YoY.
Q IndusInd Bank. We expect PAT of Rs1.85bn (up 39% YoY). NIM is
expected to be flattish with a slight negative bias. We estimate loan growth at
26% supported by growth in vehicle loans and the mid-corporate portfolio.
Asset quality trends should be stable, while non-interest income could grow
30% YoY.
Q Federal Bank. We expect PAT of Rs1.8bn (up 28% YoY). We expect gross
NPL slippages to decline to Rs2.5bn in Q2 FY12 following an increase last
quarter (Rs3.2bn in Q1 FY12). NIM is expected to be stable at 3.8%, while
loans could grow at more than 20% YoY.
Q Shriram Transport Finance. We expect PAT of Rs3.3bn (up 11% YoY)
with volume growth of 2-3% QoQ and 20% YoY, while NIM (for AUM) is
expected to decline 15-20bp QoQ. We think the key driver for NIMs is the
amount of securitisation income booked during the quarter. We expect stable
asset quality and cost-to-income ratios.
Q LIC Housing Finance. We expect PAT of Rs2.5bn (up 6% YoY); our
estimates do not include Rs500-600m of additional impact, which could arise
on account of recent National Housing Bank (NHB) guidelines on standard
asset provisioning. Loan growth is expected to be strong at 30% YoY, while
overall disbursements are likely to be flat due to weak developer
disbursements. NIMs could decline around 20bp from a rising cost of funds.
Q IDFC. We expect PAT of Rs3.3bn (decline of 2% YoY). Loan growth is
likely to be flat QoQ (up 9% YoY), while NIMs should be stable QoQ due to
steady wholesale rates. Non-interest income could be weak due to slow
disbursements and sluggish IB activity.
Q REC. We estimate pre-extraordinary PAT of Rs6.8bn (up 9% YoY).
Including MTM forex losses of around Rs2.5bn, we expect reported PAT of
Rs4.9bn (decline 20% YoY). We expect flat disbursements during the
quarter, which should drive loan growth of 22% YoY. NIMs should be stable
at 4.3% due to US$300m in external commercial borrowings (ECB) raised in
August and a lending rate hike.
Q PFC. We estimate pre-extraordinary PAT of Rs7.2bn (up 3% YoY).
Including MTM forex losses of around Rs3.0bn, we expect reported PAT of
Rs4.9bn (decline 24% YoY). We estimate 20% growth in disbursements
during the quarter, which should drive loan growth of 22% YoY. NIMs are
expected to decline 10bp to 3.7% as the equity effect from last quarter wears
off. We do not expect incremental slippages during the quarter.
Q MGFL. We estimate PAT of Rs1.2bn (up 102% YoY). Strong AUM growth
is expected to continue during the quarter at 15% QoQ and 95% YoY. NIMs
could decline on rising cost of funds, but an improving cost-to-income ratio
should ensure strong profitability
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
India Banking & Finance Sector
More of the same
„ Q2 FY12 preview: private banks to report better results
We think Q2 FY12 results could be an extension of the Q1 results with public
sector (PSU) banks continuing to witness higher slippages. Non-banking financial
companies (NBFC) are facing NIM pressure, while the private banks could show
stable performance. We estimate 10% net profit growth and 15% net interest
income growth YoY for the banks under our coverage. We think the key trends to
expect are: 1) gross slippages and restructuring should remain high for the PSU
banks, with stable asset quality for the private banks and NBFCs; 2) NIMs should
stay flat (slight improvement in some cases) due to lending rate hikes, while
NBFCs could face NIM pressure; 3) loan growth continues to be +20% in most
cases; and 4) slight mark-to-market (MTM) impact due to weak performance for
bonds and equities.
„ Buy Federal Bank, ICICI Bank, Axis; Sell BOI, PNB, and LICHF
We expect a NIM expansion of 10-15bp for Axis Bank as funding costs stabilise
and lending rates rose 75bp during the quarter. Federal Bank could record lower
non-performing loan (NPL) formation with its recovery efforts. We expect NIM
pressure to continue for LIC Housing (LICHF) even as growth remains strong
while slippages is expected to rise in case of Bank of India (BOI).
NBFCs
Performance among the NBFCs could diverge. We prefer the gold finance
companies. Loan growth for Manappuram Finance (MGFL) and LICHF should
remain strong, and we expect a slowdown in disbursements for Infrastructure
Development Finance (IDFC) and Shriram Transport Finance (SHTF) in light of
a weakening macro environment. NIMs for LICH/SHTF could decline 15-20bp
QoQ due to the lagged impact of liability re-pricing, while those for IDFC,
Power Finance (PFC) and Rural Electrification (REC) should be stable. PFC and
REC are likely to book extraordinary losses due to currency depreciation, which
we estimate at Rs2.5-3.0bn. LICHF might have one-time standard asset
provisions of Rs500-600m due to a regulation change in August (we have not
built this in our estimates as the company is seeking clarification from the
regulator). We do not expect a material deterioration in asset quality for any of
the NBFCs.
Quarterly expectations
Q ICICI Bank. We expect PAT to grow 18% YoY and 9% QoQ. NII could
remain flat QoQ (13% YoY growth) as we expect loan growth of 19% YoY
and flat QoQ margins of 2.6% in Q2. Asset quality is expected to remain
stable, which would keep NPL provisions lower than normalised levels of
70bp during the quarter. We are building in sluggish fee income growth of
5% YoY for the quarter.
Q Axis Bank. We expect PAT to grow 22% YoY and decline 5% QoQ.
Margins could improve 15bp QoQ to 3.4%, while loans could grow 26%
YoY and 6% QoQ. We are building in 75bp (annualised) loan loss
provisioning (LLP) in Q2 as we expect NPL additions to increase from a low
base of Q1.
Q SBI. PAT at Rs25.4bn should remain flat YoY, down 60% QoQ. We expect
margins to remain stable QoQ at 3.6%m while loans could grow 3% QoQ
and 17% YoY. NPL slippages are expected to remain high at Q1 levels of 3-
3.5% (annualised) of loans. We are building in an MTM loss of Rs5bn due to
increased bond yields and weak equity performance.
Q HDFC Bank. We expect PAT of Rs11.9bn (up 30% YoY) and NII of
Rs29.6bn (up 17% YoY). NIMs are expected to be stable at 4.2%, while we
expect loan growth of 17% YoY (higher base in H110). Asset quality should
remain stable with the provisioning trend maintained for higher coverage.
Q HDFC Ltd. We expect PAT of Rs9.3bn (up 15% YoY) with net operating
income of Rs14bn (up 13% YoY). We estimate loan growth of 20% YoY,
while spreads should be stable with steady wholesale rates. We expect
investment gains to improve QoQ with disbursement growth of 20%.
Q PNB. We expect PAT of Rs10bn (-7% YoY). Slippages could rise as the
bank transitions its loans with ticket sizes less than Rs50m to system-based
recognition. NIMs could decline 10bp QoQ to 3.7% as the re-pricing of term
deposits leads to a higher cost of deposits. We expect a 7% YoY decline in
profit due to lower margins and higher LLP.
Q Bank of Baroda (BoB). We expect PAT of Rs10.2bn (flat YoY). We expect
stable NIMs at 2.9% with loan growth of 25% YoY. We expect provisions to
rise QoQ with higher slippages during the quarter.
Q BOI. We expect PAT of Rs5.5bn (decline 11% YoY). High slippages should
persist. NIMs too could be impacted as a result of a reversal in interest
income and high funding costs. We expect loan growth of 21% YoY; we are
building in an MTM impact on account of adverse yield movements during
end-September. In overall, we expect a weak quarter.
Q Union Bank. We expect PAT of Rs4.9bn (up 9% YoY) and NII of Rs16.4bn
(up 7% YoY). NIMs are expected to be stable QoQ at 3.1%, with gross
slippages at Rs7-10bn (higher than in Q1); we expect loan growth of 20%
YoY.
Q IndusInd Bank. We expect PAT of Rs1.85bn (up 39% YoY). NIM is
expected to be flattish with a slight negative bias. We estimate loan growth at
26% supported by growth in vehicle loans and the mid-corporate portfolio.
Asset quality trends should be stable, while non-interest income could grow
30% YoY.
Q Federal Bank. We expect PAT of Rs1.8bn (up 28% YoY). We expect gross
NPL slippages to decline to Rs2.5bn in Q2 FY12 following an increase last
quarter (Rs3.2bn in Q1 FY12). NIM is expected to be stable at 3.8%, while
loans could grow at more than 20% YoY.
Q Shriram Transport Finance. We expect PAT of Rs3.3bn (up 11% YoY)
with volume growth of 2-3% QoQ and 20% YoY, while NIM (for AUM) is
expected to decline 15-20bp QoQ. We think the key driver for NIMs is the
amount of securitisation income booked during the quarter. We expect stable
asset quality and cost-to-income ratios.
Q LIC Housing Finance. We expect PAT of Rs2.5bn (up 6% YoY); our
estimates do not include Rs500-600m of additional impact, which could arise
on account of recent National Housing Bank (NHB) guidelines on standard
asset provisioning. Loan growth is expected to be strong at 30% YoY, while
overall disbursements are likely to be flat due to weak developer
disbursements. NIMs could decline around 20bp from a rising cost of funds.
Q IDFC. We expect PAT of Rs3.3bn (decline of 2% YoY). Loan growth is
likely to be flat QoQ (up 9% YoY), while NIMs should be stable QoQ due to
steady wholesale rates. Non-interest income could be weak due to slow
disbursements and sluggish IB activity.
Q REC. We estimate pre-extraordinary PAT of Rs6.8bn (up 9% YoY).
Including MTM forex losses of around Rs2.5bn, we expect reported PAT of
Rs4.9bn (decline 20% YoY). We expect flat disbursements during the
quarter, which should drive loan growth of 22% YoY. NIMs should be stable
at 4.3% due to US$300m in external commercial borrowings (ECB) raised in
August and a lending rate hike.
Q PFC. We estimate pre-extraordinary PAT of Rs7.2bn (up 3% YoY).
Including MTM forex losses of around Rs3.0bn, we expect reported PAT of
Rs4.9bn (decline 24% YoY). We estimate 20% growth in disbursements
during the quarter, which should drive loan growth of 22% YoY. NIMs are
expected to decline 10bp to 3.7% as the equity effect from last quarter wears
off. We do not expect incremental slippages during the quarter.
Q MGFL. We estimate PAT of Rs1.2bn (up 102% YoY). Strong AUM growth
is expected to continue during the quarter at 15% QoQ and 95% YoY. NIMs
could decline on rising cost of funds, but an improving cost-to-income ratio
should ensure strong profitability
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