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For 2QFY2012, Syndicate Bank reported a 36.2% yoy growth in its net profit to
`323cr well ahead of our as well as street estimates. However, the earnings
growth was partly driven by a lower effective tax rate than expected, on the PBT
front the numbers were 7.5% ahead of our estimates. NIM expansion was healthy;
however slippages rose sharply (due to completion of switch-over to the systembased
NPA recognition platform) which were offset by aggressive write-offs and
upgrades. We maintain a Buy recommendation on the stock.
NIM rebounds; slippages to decline going forward: The bank’s advances grew by
3.3% qoq (up 18.9% yoy), while deposits accretion picked up pace to rise by 6.2%
qoq (up by 21.5% yoy). CASA deposits growth was muted at 6.4% yoy, leading to
a 433bp yoy dip in CASA ratio. The bank’s reported NIMs for the quarter
rebounded by 28bp qoq to 3.4% on the back of a 71bp qoq expansion in loan
yields as compared to a 33bp rise in cost of deposits. On the asset quality front,
the sharp rise in slippages was countered by aggressive write-offs. The annualized
slippage ratio rose to 3.6% from 1.3% in 1QFY2012, as the bank completed the
switch-over to system-based NPA recognition platform. However aggressive
write-offs and business growth resulted in sequentially flat gross and net NPA
ratios at 2.4% and 0.9%, respectively. The provision coverage ratio including
technical write offs remained healthy at 78.5%.
Outlook and valuation: At the CMP, the stock is trading at attractive valuations of
0.7x FY2013E ABV compared to its five-year range of 0.7x–1.3x one-year forward
ABV with a median of 0.9x. Keeping in mind the bank’s stable asset quality,
moderate growth strategy over the past couple of years and moderate NIM, the
valuation appears cheap relative to its peers. We value the stock at 0.85x
FY2013E ABV and maintain a Buy recommendation with a target price of `127.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
For 2QFY2012, Syndicate Bank reported a 36.2% yoy growth in its net profit to
`323cr well ahead of our as well as street estimates. However, the earnings
growth was partly driven by a lower effective tax rate than expected, on the PBT
front the numbers were 7.5% ahead of our estimates. NIM expansion was healthy;
however slippages rose sharply (due to completion of switch-over to the systembased
NPA recognition platform) which were offset by aggressive write-offs and
upgrades. We maintain a Buy recommendation on the stock.
NIM rebounds; slippages to decline going forward: The bank’s advances grew by
3.3% qoq (up 18.9% yoy), while deposits accretion picked up pace to rise by 6.2%
qoq (up by 21.5% yoy). CASA deposits growth was muted at 6.4% yoy, leading to
a 433bp yoy dip in CASA ratio. The bank’s reported NIMs for the quarter
rebounded by 28bp qoq to 3.4% on the back of a 71bp qoq expansion in loan
yields as compared to a 33bp rise in cost of deposits. On the asset quality front,
the sharp rise in slippages was countered by aggressive write-offs. The annualized
slippage ratio rose to 3.6% from 1.3% in 1QFY2012, as the bank completed the
switch-over to system-based NPA recognition platform. However aggressive
write-offs and business growth resulted in sequentially flat gross and net NPA
ratios at 2.4% and 0.9%, respectively. The provision coverage ratio including
technical write offs remained healthy at 78.5%.
Outlook and valuation: At the CMP, the stock is trading at attractive valuations of
0.7x FY2013E ABV compared to its five-year range of 0.7x–1.3x one-year forward
ABV with a median of 0.9x. Keeping in mind the bank’s stable asset quality,
moderate growth strategy over the past couple of years and moderate NIM, the
valuation appears cheap relative to its peers. We value the stock at 0.85x
FY2013E ABV and maintain a Buy recommendation with a target price of `127.
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