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IDBI Bank's asset quality disappointed yet again in 2QFY12. Further, management expects no
significant improvement in asset quality in 2HFY12. The bank plans to focus on CASA
improvement, meeting priority sector requirements and targets a muted yoy loan growth in FY12.
We downgrade the stock to Hold.
Asset quality concerns persist; no significant improvement likely in 2HFY12
Incremental delinquencies were about 70bp of loans (one-year lag basis) in 2QFY12 (120bp in
1HFY12 vs 130bp in FY11 and 120bp in FY10). The default rate in the SME portfolio on a oneyear
lag basis is about 10% (see Table 2). Total gross NPLs rose from Rs27.8bn as of March
2011 (1.76% of loans) to about Rs39bn as of September 2011 (2.47% of loans). Similarly, net
NPLs rose from Rs16.8bn (1.06% of loans) to Rs24.4bn (1.57% of loans) over the same period.
Restructured loans were 5.7% of the loan book as of September 2011 (3.9% excluding a large
legacy account). As the operating environment remains challenging, management does not
expect any significant improvement in asset quality going forward.
2QFY12: operating profit performance largely on track
Operating profit fell 2% yoy in 2QFY12 (+10% yoy in 1HFY12), largely in line with our estimates.
Net interest margin slid about 7bp qoq to 2% in 2QFY12. The return on assets, on an annualised
basis for 1HFY12, works out to about 69bp compared to 73bp in FY11 and 53bp in FY10. We
expect no material traction in the ROA trend in the medium term, given the elevated interest rate
environment and IDBI Bank’s largely wholesale-funded liability mix.
Muted business growth targets in FY12; no immediate plans to raise capital
The bank targets 15% yoy loan growth in FY12 and tier-I capital (including 1HFY12 net profit)
was about 8.1% as of September 2011. According to management, given muted business growth
targets, the bank does not plan to raise capital in the near future.
Earnings cut; downgrade to Hold
We marginally lower our earnings estimates. Further, we increase the year-end net NPL estimate,
which drives down the adjusted BV to about Rs120 in FY12F. After applying a 20% discount (for
higher net NPLs) to the implied price-to-book value multiple, we arrive at a new SOTP target price
of Rs114 (down from Rs161). We downgrade to Hold. Going forward, we would view any action
by the bank to sell its strategic investments (see Table 4) as a positive trigger for the stock price.
Note we factor the value of IDBI Bank’s stake in NSE and CARE in our target price.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IDBI Bank's asset quality disappointed yet again in 2QFY12. Further, management expects no
significant improvement in asset quality in 2HFY12. The bank plans to focus on CASA
improvement, meeting priority sector requirements and targets a muted yoy loan growth in FY12.
We downgrade the stock to Hold.
Asset quality concerns persist; no significant improvement likely in 2HFY12
Incremental delinquencies were about 70bp of loans (one-year lag basis) in 2QFY12 (120bp in
1HFY12 vs 130bp in FY11 and 120bp in FY10). The default rate in the SME portfolio on a oneyear
lag basis is about 10% (see Table 2). Total gross NPLs rose from Rs27.8bn as of March
2011 (1.76% of loans) to about Rs39bn as of September 2011 (2.47% of loans). Similarly, net
NPLs rose from Rs16.8bn (1.06% of loans) to Rs24.4bn (1.57% of loans) over the same period.
Restructured loans were 5.7% of the loan book as of September 2011 (3.9% excluding a large
legacy account). As the operating environment remains challenging, management does not
expect any significant improvement in asset quality going forward.
2QFY12: operating profit performance largely on track
Operating profit fell 2% yoy in 2QFY12 (+10% yoy in 1HFY12), largely in line with our estimates.
Net interest margin slid about 7bp qoq to 2% in 2QFY12. The return on assets, on an annualised
basis for 1HFY12, works out to about 69bp compared to 73bp in FY11 and 53bp in FY10. We
expect no material traction in the ROA trend in the medium term, given the elevated interest rate
environment and IDBI Bank’s largely wholesale-funded liability mix.
Muted business growth targets in FY12; no immediate plans to raise capital
The bank targets 15% yoy loan growth in FY12 and tier-I capital (including 1HFY12 net profit)
was about 8.1% as of September 2011. According to management, given muted business growth
targets, the bank does not plan to raise capital in the near future.
Earnings cut; downgrade to Hold
We marginally lower our earnings estimates. Further, we increase the year-end net NPL estimate,
which drives down the adjusted BV to about Rs120 in FY12F. After applying a 20% discount (for
higher net NPLs) to the implied price-to-book value multiple, we arrive at a new SOTP target price
of Rs114 (down from Rs161). We downgrade to Hold. Going forward, we would view any action
by the bank to sell its strategic investments (see Table 4) as a positive trigger for the stock price.
Note we factor the value of IDBI Bank’s stake in NSE and CARE in our target price.
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