One-off slippage mars performance
FED’s Q3FY13 core performance was largely in line (PPP at Rs3.9bn vs Rs3.8bn
estimated) though spike in provisions led to a lower than expected bottomline.
NIM contracted by ~10bps QoQ on reversal of interest income on NPAs.
Asset quality matrices deteriorated due to one-offs with 1) gross slippage rate
jumping to 5.4% led by chunky slippage 2) GNPA going up 9% QoQ to 3.85%
and 3) PCR eroding by 600bps QoQ despite high provisioning cost at 82bps.
Notwithstanding the one-off hit to asset quality during the quarter, we
remain positive on the radical changes introduced by the new management
and its potential long term benefits. We stick to our thesis of RoE expansion,
which in turn should drive further re-rating of the stock over the long term.
We maintain Buy and target price of Rs600.
NIM contracts by 11bps QoQ: NII de-grew by 6% YoY to Rs5.0bn as NIM
contracted by 11bps QoQ offsetting the uptick in credit growth (19% YoY vs
8% last quarter). Importantly, the contraction in NIM was the result of reversal
of interest income on NPAs (Rs300mn mainly Air India & NAFED). Meanwhile,
cost of deposits inched up marginally as the last leg of NR deposits repriced
upwards to post-deregulation rates. Q4FY13 would still have the burden of Air
India FITL and hence will continue to contain NIMs. Management guided for a
NIM of 3.55% for FY13.
Uptick in loan growth: Loan growth during the quarter registered an uptick
and stood at 19% YoY (from 8% in the previous quarter) with key segments
driving growth. The corporate segment made a major comeback with 12.6%
QoQ growth. Incrementally, the bank remains comfortable in expanding its
SME and retail book given acceptable slippage performance though cautious
stance towards corporate segment will stay for the near term. The
management intends to close FY13 with a loan growth of 15-16% while for
FY14 it expects to get more aggressive with target of ~25% YoY.
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