Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key points
The Q2FY2012 earnings of our banking universe were
marginally higher than our estimates mainly due to a
better than expected performance on the net interest
income (NII) front. This could be attributed to steady
margins, which increased for most banks on a sequential
basis. However, the asset quality deteriorated sharply
for the public sector banks (PSBs) led by a shift to the
system-based non-performing asset (NPA) recognition,
slippages from restructured book and some large
corporate accounts resulting in a sharp rise in the
provision expenses. The non-interest income growth
remained subdued due to nominal treasury gains and
weakness in the fee income growth.
Going ahead, we expect the business growth to
moderate in line with the weak macro environment,
thereby affecting the core income, which has shown a
steady growth so far. Meanwhile, the slower growth,
the rising stress across sectors of the economy and the
asset quality risks will take the centre-stage. While
bank stocks have corrected significantly (the correction
partly factors in the concerns over the rise in the NPAs
and the earnings slowdown), the risks on asset quality
have increased with the deterioration in the macro
environment. We, therefore, prefer banks having a
relatively stable earnings profile and less asset quality
pressure in the emerging environment. We recommend
Yes Bank (a strong growth and reasonable valuation),
HDFC bank (a consistent performance) and ICICI Bank
(upgraded to Buy due to attractive valuation). Though
we remain cautious on the PSBs, but we prefer Bank of
Baroda (BoB), which has consistently delivered on all
fronts and is trading at a reasonable valuation.
Earnings growth slightly higher than our estimates but
showing moderation
During Q2FY2012, our banking universe reported an earnings
growth of 15% year on year (YoY) and of 8% (ex State Bank of
India [SBI]) on a quarter-on-quarter (Q-o-Q) basis. The PSBs
under our coverage reported a growth of 10% YoY in their earnings
while the private banks fared better positing a growth of 26.5%
YoY in their earnings, with HDFC Bank, Axis Bank and ICICI Bank
continuing the upward trend in their earnings growth.
Earnings revisions
Company Upwards/ Reason Reco Target
Downwards
SBI Downwards The strong growth in operating profits was marred by a sharp rise in
slippages. The deteriorating asset quality remains an overhang on earnings.
We believe the bank’s business growth will be impacted by rising slippages
and capital constraints which in turn may impact the earnings growth.
Therefore we have reduced our FY2012 and FY2013 estimates by 9.2% and
3.4% respectively to factor the above concerns. We maintain our Hold rating
with a SOTP based target price of Rs2,180 (Rs1,600 for standalone SBI).
PNB Finetuned PNB delivered a superior performance in Q2FY2012 led by a healthy core
performance. The margins expanded despite cost pressures while the
fee“income showed a strong growth. However, a rise in the restructured
advances and exposure to sensitive sectors (power, commercial real estate)
could bring the asset quality under pressure. We expect PNB’s earnings to
grow at a CAGR of 14% over FY2011-13E, leading to a RoE of around 21%.
Bank of Baroda Finetuned BOB continues to deliver a strong performance despite a tough environment.
We expect the earnings of the bank to grow at a CAGR of 13% over FY2011-
13 led by a 21% CAGR growth in the advances. We believe BOB commands
a premium over other PSU banks due to its strong growth in core income
and a healthy asset quality. We maintain our target price of Rs850 (1.2x
FY2013E BV) and maintain our Buy rating on the stock.
Bank of India Downwards BOI’s Q2FY2012 results were disappointing as slippages continued to climb
up while core income growth remained subdued. In addition, subdued
margins and slower business growth will continue to impact the RoE and
RoA. We have valued BOI at a 15% discount to FY2013E book value on higher
NPAs and weak earnings growth.
Union Bank Downwards Union Bank continues to disappoint on the asset quality front while the
operating performance is still catching up. We have also reduced our
advances growth estimates due to a rise in NPAs as the focus will now shift
to recoveries. Consequently our earnings estimates for FY2012 and FY2013
have been revised downwards by 15% and 7% respectively. We also reduce
our target price to Rs255 (0.9x FY2013E BV).
Corporation Bank Downwards Due to a low CASA ratio and subdued NIM the operating performance of the
bank continues to remain weak. In addition, a rise in the NPAs will impact
the business growth and volatility in earnings. We expect Corporation Bank’s
earnings to grow at a CAGR of 8% over FY2011-13.
Andhra Bank Downwards Andhra Bank also reported a sharp increase in NPAs led by higher slippages
due to the roll-over to system based NPA recognition.The deteriorating
CASA ratio and rising NPAs and the shifting of focus to recoveries will affect
the bank’s operating performance. We therefore revise our estimates for
FY2012 and FY2013 downwards by 1.2% and 8.3% respectively.
Allahabad Bank Finetuned Allahabad Bank’s Q2FY2012 performance was characterised by a strong
growth in NII and a relatively better performance on the asset quality front.
We believe Allahabad Bank will deliver a stronger growth compared to its
peer banks, though the asset quality could see some pressure if the macro
environment weakens. We expect the earnings of the bank to grow at a
CAGR of 25% over FY2011-13.
IDBI Bank Finetuned The bank continues its strategy of pursuing a slower advances growth and
focusing on the credit quality, CASA growth, retail deposits etc. We estimate
earnings to grow at a CAGR of 14% over FY2011-13 contributed by an around
17% growth in the NII. Due to asset quality concerns and insignificant
improvement in other operating parameters we have trimmed our FY12,
FY13 estimates and continue to value the bank at a discount to its book
value.
ICICI Bank Finetuned ICICI Bank’s Q2FY2012 results were characterised by a steady growth in
core income, improvement in asset quality and a decline in provision
expenses. We expect ICICI Bank’s earnings to grow at a CAGR of 14.5% over
FY2011-13. We have revised our target price to Rs998 (Rs745 for standalone
banks and Rs253 for other businesses).
Company Upwards/ Reason Reco Target
HDFC Bank Finetuned HDFC Bank continues to report strong profits; this time the profits were led by a
strong growth in advances. The margins witnessed some pressure due to an
increase in term deposits while the asset quality remained stable. We expect
the bank’s earnings to grow at a compounded annual growth rate (CAGR) of 24%
over FY2011-13, led by a 25% CAGR growth in advances. HDFC Bank remains
among the safer bets within the banking space due to its consistent growth and
impeccable asset quality.
Axis Bank Upwards Axis Bank’s operating performance remained strong in Q2FY2012 as the bank
posted a strong growth in the NII and fee income. We expect Axis Bank’s earnings
to grow at a CAGR of 19.2% over FY2011-13 contributed by a 22.7% CAGR in
advances. We upgrade the target price of Axis Bank to Rs1,410 (2.2x FY2013 BV).
Federal Bank Finetuned Federal Bank’s Q2FY2012 results were characterised by a recovery in business
growth and a significant improvement in the asset quality. We believe the bank’s
operating performance will improve led by the management’s initiatives to
improve credit origination practices, efficiency, focus on recovery etc.
Yes Bank Finetuned Yes Bank delivered a strong set of numbers in Q2FY2012 driven by a strong
operating performance and healthy asset quality. The increase in NIM was a
positive surprise, though it could decline slightly in the coming quarters due to
a low CASA base and high interest rates. We expect the bank’s earnings to grow
at a CAGR of 27% over FY2011-13.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key points
The Q2FY2012 earnings of our banking universe were
marginally higher than our estimates mainly due to a
better than expected performance on the net interest
income (NII) front. This could be attributed to steady
margins, which increased for most banks on a sequential
basis. However, the asset quality deteriorated sharply
for the public sector banks (PSBs) led by a shift to the
system-based non-performing asset (NPA) recognition,
slippages from restructured book and some large
corporate accounts resulting in a sharp rise in the
provision expenses. The non-interest income growth
remained subdued due to nominal treasury gains and
weakness in the fee income growth.
Going ahead, we expect the business growth to
moderate in line with the weak macro environment,
thereby affecting the core income, which has shown a
steady growth so far. Meanwhile, the slower growth,
the rising stress across sectors of the economy and the
asset quality risks will take the centre-stage. While
bank stocks have corrected significantly (the correction
partly factors in the concerns over the rise in the NPAs
and the earnings slowdown), the risks on asset quality
have increased with the deterioration in the macro
environment. We, therefore, prefer banks having a
relatively stable earnings profile and less asset quality
pressure in the emerging environment. We recommend
Yes Bank (a strong growth and reasonable valuation),
HDFC bank (a consistent performance) and ICICI Bank
(upgraded to Buy due to attractive valuation). Though
we remain cautious on the PSBs, but we prefer Bank of
Baroda (BoB), which has consistently delivered on all
fronts and is trading at a reasonable valuation.
Earnings growth slightly higher than our estimates but
showing moderation
During Q2FY2012, our banking universe reported an earnings
growth of 15% year on year (YoY) and of 8% (ex State Bank of
India [SBI]) on a quarter-on-quarter (Q-o-Q) basis. The PSBs
under our coverage reported a growth of 10% YoY in their earnings
while the private banks fared better positing a growth of 26.5%
YoY in their earnings, with HDFC Bank, Axis Bank and ICICI Bank
continuing the upward trend in their earnings growth.
Earnings revisions
Company Upwards/ Reason Reco Target
Downwards
SBI Downwards The strong growth in operating profits was marred by a sharp rise in
slippages. The deteriorating asset quality remains an overhang on earnings.
We believe the bank’s business growth will be impacted by rising slippages
and capital constraints which in turn may impact the earnings growth.
Therefore we have reduced our FY2012 and FY2013 estimates by 9.2% and
3.4% respectively to factor the above concerns. We maintain our Hold rating
with a SOTP based target price of Rs2,180 (Rs1,600 for standalone SBI).
PNB Finetuned PNB delivered a superior performance in Q2FY2012 led by a healthy core
performance. The margins expanded despite cost pressures while the
fee“income showed a strong growth. However, a rise in the restructured
advances and exposure to sensitive sectors (power, commercial real estate)
could bring the asset quality under pressure. We expect PNB’s earnings to
grow at a CAGR of 14% over FY2011-13E, leading to a RoE of around 21%.
Bank of Baroda Finetuned BOB continues to deliver a strong performance despite a tough environment.
We expect the earnings of the bank to grow at a CAGR of 13% over FY2011-
13 led by a 21% CAGR growth in the advances. We believe BOB commands
a premium over other PSU banks due to its strong growth in core income
and a healthy asset quality. We maintain our target price of Rs850 (1.2x
FY2013E BV) and maintain our Buy rating on the stock.
Bank of India Downwards BOI’s Q2FY2012 results were disappointing as slippages continued to climb
up while core income growth remained subdued. In addition, subdued
margins and slower business growth will continue to impact the RoE and
RoA. We have valued BOI at a 15% discount to FY2013E book value on higher
NPAs and weak earnings growth.
Union Bank Downwards Union Bank continues to disappoint on the asset quality front while the
operating performance is still catching up. We have also reduced our
advances growth estimates due to a rise in NPAs as the focus will now shift
to recoveries. Consequently our earnings estimates for FY2012 and FY2013
have been revised downwards by 15% and 7% respectively. We also reduce
our target price to Rs255 (0.9x FY2013E BV).
Corporation Bank Downwards Due to a low CASA ratio and subdued NIM the operating performance of the
bank continues to remain weak. In addition, a rise in the NPAs will impact
the business growth and volatility in earnings. We expect Corporation Bank’s
earnings to grow at a CAGR of 8% over FY2011-13.
Andhra Bank Downwards Andhra Bank also reported a sharp increase in NPAs led by higher slippages
due to the roll-over to system based NPA recognition.The deteriorating
CASA ratio and rising NPAs and the shifting of focus to recoveries will affect
the bank’s operating performance. We therefore revise our estimates for
FY2012 and FY2013 downwards by 1.2% and 8.3% respectively.
Allahabad Bank Finetuned Allahabad Bank’s Q2FY2012 performance was characterised by a strong
growth in NII and a relatively better performance on the asset quality front.
We believe Allahabad Bank will deliver a stronger growth compared to its
peer banks, though the asset quality could see some pressure if the macro
environment weakens. We expect the earnings of the bank to grow at a
CAGR of 25% over FY2011-13.
IDBI Bank Finetuned The bank continues its strategy of pursuing a slower advances growth and
focusing on the credit quality, CASA growth, retail deposits etc. We estimate
earnings to grow at a CAGR of 14% over FY2011-13 contributed by an around
17% growth in the NII. Due to asset quality concerns and insignificant
improvement in other operating parameters we have trimmed our FY12,
FY13 estimates and continue to value the bank at a discount to its book
value.
ICICI Bank Finetuned ICICI Bank’s Q2FY2012 results were characterised by a steady growth in
core income, improvement in asset quality and a decline in provision
expenses. We expect ICICI Bank’s earnings to grow at a CAGR of 14.5% over
FY2011-13. We have revised our target price to Rs998 (Rs745 for standalone
banks and Rs253 for other businesses).
Company Upwards/ Reason Reco Target
HDFC Bank Finetuned HDFC Bank continues to report strong profits; this time the profits were led by a
strong growth in advances. The margins witnessed some pressure due to an
increase in term deposits while the asset quality remained stable. We expect
the bank’s earnings to grow at a compounded annual growth rate (CAGR) of 24%
over FY2011-13, led by a 25% CAGR growth in advances. HDFC Bank remains
among the safer bets within the banking space due to its consistent growth and
impeccable asset quality.
Axis Bank Upwards Axis Bank’s operating performance remained strong in Q2FY2012 as the bank
posted a strong growth in the NII and fee income. We expect Axis Bank’s earnings
to grow at a CAGR of 19.2% over FY2011-13 contributed by a 22.7% CAGR in
advances. We upgrade the target price of Axis Bank to Rs1,410 (2.2x FY2013 BV).
Federal Bank Finetuned Federal Bank’s Q2FY2012 results were characterised by a recovery in business
growth and a significant improvement in the asset quality. We believe the bank’s
operating performance will improve led by the management’s initiatives to
improve credit origination practices, efficiency, focus on recovery etc.
Yes Bank Finetuned Yes Bank delivered a strong set of numbers in Q2FY2012 driven by a strong
operating performance and healthy asset quality. The increase in NIM was a
positive surprise, though it could decline slightly in the coming quarters due to
a low CASA base and high interest rates. We expect the bank’s earnings to grow
at a CAGR of 27% over FY2011-13.
No comments:
Post a Comment