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S l i p p a g e s m o u n t ; h i g h p r o v i s i o n s h i t P A T g r o w t h
IOB continues to grapple with asset quality concerns as slippages rose
sharply by | 995 crore in Q2FY12 (| 485 crore in Q1FY12) pushing up GNPA
by 18% to | 3898 crore (GNPA ratio @ 3.07%). Out of the total slippages, |
498 crore slipped as the bank shifted loans below | 50 lakh to system based
NPA recognition system, thus shifting its entire portfolio to automated NPA
recognition. Consequently, higher provisions for NPA bogged down PAT,
which was flat QoQ and YoY at | 207.5 crore. The core business
performance was strong with credit growth of 44.4% YoY, deposits up
38.5% YoY and NII rising 32% YoY to | 1266 crore after contracting by
2.3% QoQ in Q1FY12. Both CASA and NIM that declined last quarter were
stable QoQ at 27.5% and 2.86%, respectively, in Q2FY12. We expect
business growth of 20% CAGR to lead to 21% CAGR in NII over FY11-13E.
However, in light of higher-than-expected slippages & provisions we have
lowered FY12E and FY13E profit estimates by 21% and 4%, respectively.
ƒ Pre provisioning profit (PPP) up 47.3% YoY despite higher opex…
NII increased 32% YoY backed by sequentially flat NIM at 2.86%.
Other income grew a healthy 26% QoQ buoyed by fee income and
profit on sale of investments. Despite a sustained increase in opex (up
9% QoQ), PPP was up 47.3% YoY (13% QoQ) at | 906.8 crore.
ƒ Slippages high as bank completes automation of NPA recognition…
GNPA jumped 18% QoQ to | 3898 crore and NNPA rose 20% QoQ to
| 1505 crore due to high slippages of | 995 crore (| 498 crore due to
bank shifting loans below | 50 lakh to system based NPA recognition).
Consequently, provision for NPA was higher at | 463 crore with PCR at
71.7%. Restructured assets rose 7% QoQ to | 7179 crore while
slippages from restructured assets amounted to |229 crore in Q2FY12.
Although IOB has shifted to system based NPA, we expect slippages
to remain high and estimate GNPA of 2.8% & NNPA of 1.2% by FY13E.
V a l u a t i o n
Asset quality concerns have come to haunt IOB again after its much touted
turnaround in Q2FY11. Even though the bank has shifted its entire loan
portfolio to system based NPA resulting in higher slippages, we expect
slippages to stay high (albeit lower than | 995 crore seen in Q2FY12).
Recoveries and upgradations need to be monitored for a revival in asset
quality. We have revised our profit estimates on account of lower credit
growth guidance of 20% for FY12E and higher provisions. Hence, we
maintain our target multiple at 0.9x FY13E ABV and arrive at a TP of | 117
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
S l i p p a g e s m o u n t ; h i g h p r o v i s i o n s h i t P A T g r o w t h
IOB continues to grapple with asset quality concerns as slippages rose
sharply by | 995 crore in Q2FY12 (| 485 crore in Q1FY12) pushing up GNPA
by 18% to | 3898 crore (GNPA ratio @ 3.07%). Out of the total slippages, |
498 crore slipped as the bank shifted loans below | 50 lakh to system based
NPA recognition system, thus shifting its entire portfolio to automated NPA
recognition. Consequently, higher provisions for NPA bogged down PAT,
which was flat QoQ and YoY at | 207.5 crore. The core business
performance was strong with credit growth of 44.4% YoY, deposits up
38.5% YoY and NII rising 32% YoY to | 1266 crore after contracting by
2.3% QoQ in Q1FY12. Both CASA and NIM that declined last quarter were
stable QoQ at 27.5% and 2.86%, respectively, in Q2FY12. We expect
business growth of 20% CAGR to lead to 21% CAGR in NII over FY11-13E.
However, in light of higher-than-expected slippages & provisions we have
lowered FY12E and FY13E profit estimates by 21% and 4%, respectively.
ƒ Pre provisioning profit (PPP) up 47.3% YoY despite higher opex…
NII increased 32% YoY backed by sequentially flat NIM at 2.86%.
Other income grew a healthy 26% QoQ buoyed by fee income and
profit on sale of investments. Despite a sustained increase in opex (up
9% QoQ), PPP was up 47.3% YoY (13% QoQ) at | 906.8 crore.
ƒ Slippages high as bank completes automation of NPA recognition…
GNPA jumped 18% QoQ to | 3898 crore and NNPA rose 20% QoQ to
| 1505 crore due to high slippages of | 995 crore (| 498 crore due to
bank shifting loans below | 50 lakh to system based NPA recognition).
Consequently, provision for NPA was higher at | 463 crore with PCR at
71.7%. Restructured assets rose 7% QoQ to | 7179 crore while
slippages from restructured assets amounted to |229 crore in Q2FY12.
Although IOB has shifted to system based NPA, we expect slippages
to remain high and estimate GNPA of 2.8% & NNPA of 1.2% by FY13E.
V a l u a t i o n
Asset quality concerns have come to haunt IOB again after its much touted
turnaround in Q2FY11. Even though the bank has shifted its entire loan
portfolio to system based NPA resulting in higher slippages, we expect
slippages to stay high (albeit lower than | 995 crore seen in Q2FY12).
Recoveries and upgradations need to be monitored for a revival in asset
quality. We have revised our profit estimates on account of lower credit
growth guidance of 20% for FY12E and higher provisions. Hence, we
maintain our target multiple at 0.9x FY13E ABV and arrive at a TP of | 117
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