Margins under pressure for IDBI Bank:: CSEC Research

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Margins under pressure

IDBI Bank’s revenues and operating profit were lower than expected.  Slow credit growth and rise in cost of fund contributed to the decline in profits.  Chunky slippages also saw a decline in asset quality.

Quarterly Highlights

·         Top-line lower than expected

·         PAT down 9.7% YoY at Rs 4.1bn

·         Credit growth at 16.2%YoY

·         Deposit growth healthy at 17.9%YoY

·         CASA improves to 19.2% up 414bps

·         Asset quality healthy deteriorates, net NPLs at 2%

·         Chunk of slippage from a single account

·         Spreads under pressure

·         Net interest down 12%YoY

·         Operating profits down 27.3%YoY

Valuation

At current levels the stock trades at 0.8X FY13E adjusted book value and 6.95X FY13E EPS. We rate the stock an OUTPERFORMER with a target price of Rs 151. The bank has strategic stakes in NSE, CARE and several other unlisted entities in the financial services space. These investments are expected to provide down-side cushion. Key risks include a lower than expected CASA composition and greater than expected slippages.

 

Regards,

CSEC Research