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Strong core performance
FED’s Q3FY12 bottom-line performance (Rs2.02bn, up 41% YoY) was well
ahead of our estimates led by a positive surprise on NIMs and fx related
revenue streams. Importantly, the management has delivered on its promise
by bringing down slippages in retail & SME book, though large corporate
slippages jumped QoQ. We raise our earnings estimates (~9% for FY12 & 3%
for FY13) and remain Buyers with a revised price target of Rs435.
NIM surprises on the upside: NII grew by a healthy 18.1% yoy (ahead of
estimates) led by a moderate but healthy credit growth (17.6% yoy) while the
reported NIM surprised positively (up 17 bps QoQ). Blended yields benefitted
from higher share of high yielding gold loans and higher investment yields
during the quarter. Against this, the increase in cost of funds was contained at
~10bps QoQ as the bank shed some of its high cost deposits. NIMs are likely to
move lower in quarters to come as the impact of deregulation of NRE deposit
rates trickles down.
Credit growth tracking industry average: The advances book grew by
17.6% yoy to Rs332bn primarily driven by the corporate segment (30% YoY).
The management’s focus remains on profitable growth and hence has guided
a muted ~15% loan book growth for FY13. Meanwhile, deposits grew by a
strong 27% yoy led by strong traction in savings deposits.
Asset quality: a mixed bag: FED’s Q3FY12 asset quality matrices were mixed
as slippage rate eased marginally led by retail and SME segments, however,
GNPA position deteriorated both on absolute and relative basis (up 9% & 35
bps QoQ respectively). Some of the large corporate slippages may undergo
restructuring during Q4FY12 and hence may no longer be classified as NPA.
Additional restructuring pushed the cumulative restructured assets to
Rs14.4bn (4.3% of loans) with cumulative slippages at ~30%. We maintain our
view that restructured portfolio is likely to increase further led by challenges
faced by certain sectors (infrastructure, aviation & textile).
Fee income surprises positively: In line with the trend seen so far, the noninterest
income surprised positively during the quarter led by significant
trading gains on prop forex book (Rs150mn in 9MFY12 vs Rs120mn for
FY2011). The fx trading gains are result of increased currency volatility and
hence should be viewed as one-off and is unlikely to be sustained over the
quarters to come.
Maintain Buy: We raise our earnings estimates (~9% for FY12 & 3% for FY13)
as we factor in additional information, which inturn implies a fair value
estimate of Rs435 (Rs425 earlier). At current market price of Rs392, the stock
trades at 7.8x FY2013E EPS and 1.2x FY2013E ABVPS. We believe that the
undergoing restructuring (revamping people, products and processes) should
pave way for enhanced productivity and improvement in return ratios over
next few years. Since our last sector update (dated 27th Sep’10), the stock had
gone close to our accumulation range (Rs300-320) and has recovered since
then. We maintain Buy with an investment horizon of 12-15 months.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Strong core performance
FED’s Q3FY12 bottom-line performance (Rs2.02bn, up 41% YoY) was well
ahead of our estimates led by a positive surprise on NIMs and fx related
revenue streams. Importantly, the management has delivered on its promise
by bringing down slippages in retail & SME book, though large corporate
slippages jumped QoQ. We raise our earnings estimates (~9% for FY12 & 3%
for FY13) and remain Buyers with a revised price target of Rs435.
NIM surprises on the upside: NII grew by a healthy 18.1% yoy (ahead of
estimates) led by a moderate but healthy credit growth (17.6% yoy) while the
reported NIM surprised positively (up 17 bps QoQ). Blended yields benefitted
from higher share of high yielding gold loans and higher investment yields
during the quarter. Against this, the increase in cost of funds was contained at
~10bps QoQ as the bank shed some of its high cost deposits. NIMs are likely to
move lower in quarters to come as the impact of deregulation of NRE deposit
rates trickles down.
Credit growth tracking industry average: The advances book grew by
17.6% yoy to Rs332bn primarily driven by the corporate segment (30% YoY).
The management’s focus remains on profitable growth and hence has guided
a muted ~15% loan book growth for FY13. Meanwhile, deposits grew by a
strong 27% yoy led by strong traction in savings deposits.
Asset quality: a mixed bag: FED’s Q3FY12 asset quality matrices were mixed
as slippage rate eased marginally led by retail and SME segments, however,
GNPA position deteriorated both on absolute and relative basis (up 9% & 35
bps QoQ respectively). Some of the large corporate slippages may undergo
restructuring during Q4FY12 and hence may no longer be classified as NPA.
Additional restructuring pushed the cumulative restructured assets to
Rs14.4bn (4.3% of loans) with cumulative slippages at ~30%. We maintain our
view that restructured portfolio is likely to increase further led by challenges
faced by certain sectors (infrastructure, aviation & textile).
Fee income surprises positively: In line with the trend seen so far, the noninterest
income surprised positively during the quarter led by significant
trading gains on prop forex book (Rs150mn in 9MFY12 vs Rs120mn for
FY2011). The fx trading gains are result of increased currency volatility and
hence should be viewed as one-off and is unlikely to be sustained over the
quarters to come.
Maintain Buy: We raise our earnings estimates (~9% for FY12 & 3% for FY13)
as we factor in additional information, which inturn implies a fair value
estimate of Rs435 (Rs425 earlier). At current market price of Rs392, the stock
trades at 7.8x FY2013E EPS and 1.2x FY2013E ABVPS. We believe that the
undergoing restructuring (revamping people, products and processes) should
pave way for enhanced productivity and improvement in return ratios over
next few years. Since our last sector update (dated 27th Sep’10), the stock had
gone close to our accumulation range (Rs300-320) and has recovered since
then. We maintain Buy with an investment horizon of 12-15 months.
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