IDBI 2Q12 - Another poor result :Macquarie Research,

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IDBI
2Q12 - Another poor result
Event
 IDBI reported 2Q12 PAT of Rs5.2bn, 19% above our estimate. The surprise
was mainly driven by higher treasury gains and lower provisions. Operating
performance remains weak though. Maintain Underperform.
Impact
 Delinquencies remain high. Delinquencies were a chunky 2.4% this quarter
up from 1.9% from last quarter. Delinquencies were well diversified with no
big NPLs from the usual suspects – textile, infra, gems and jewellery. This we
believe makes the situation more worrying. SMEs remain the main cause of
delinquencies, and we expect stress from there to continue.
 Not withstanding the increased delinquencies, the bank cut back on
provisioning. Provision coverage, excluding technical write offs, thus fell
400bp QoQ to 37% – the lowest in our banks coverage universe.
 Loan book has not grown. The loan book was flat QoQ and management is
looking for sub-15% growth for FY12E. They are looking to restructure the
SME department, which has been a source of significant delinquencies and
was a thrust in the previous chairman’s tenure. Much of the growth was in agri
and corporate loan book (which also benefitted from some SMEs being
reclassified as medium corporate). However retail loans also contracted by a
chunky 9%QoQ.
 Pressure on margins despite growth in CASA. There was good growth in
CASA which grew by 10% QoQ. However the bank has a substantial two
thirds of its deposits as wholesale deposits, where it is facing the pressure of
high rates. Accordingly cost of funds was up 40bp QoQ which led to a 7bp
QoQ margin decline to 2.0%.
 Poor fees growth. Core fees were down 19% YoY. We believe that this is
largely due to slowing loan growth, particularly project finance, and likely will
remain under pressure. However a trading gain of Rs600m provided some
support to the non interest income.
Earnings and target price revision
 No change.
Price catalyst
 12-month price target: Rs95.00 based on a Sum of Parts methodology.
 Catalyst: Pressure on NIMs and asset quality in 2Q12E
Action and recommendation
 The return ratios for the bank are likely to be under pressure and remain poor.
We maintain Underperform.