Syndicate Bank, Lower Provisions and Tax reversal props -Karvy

Lower Provisions and Tax reversal props
Profits
In Q3FY13, Syndicate Bank’s performance came better than our
expectations with PAT growing at 50.4% YoY (up 9.7% QoQ) to Rs5.1 bn,
owing to higher than expected tax write back and lesser than expected
credit costs. NII grew 6% YoY (up 1% QoQ) and NIM declined 4 bps QoQ
at 3.29% due to decline in yield on advances. Asset quality improved
during the quarter owing to lesser slippages. However, balance sheet
growth continues to remain moderate.
 Moderate loan Growth: Advances grew at 17.3% YoY (up 6.2% QoQ)
and Deposits grew 14.6% YoY (up 5.3% QoQ). Consequently, C‐D ratio
increased 70 bps to 82.1%. The management has guided 15‐16% credit
growth for FY13.
 Asset Quality promising: Syndicate Bank’s asset quality showed further
improvement during the quarter, as net incremental slippages declined
by Rs 186 mn and fresh slippage ratio declined to 2.7% from 3.3% in
H1FY13. Gross NPA ratio declined by 16 bps to 2.31% and net NPA ratio
reduced by 7 bps to 0.85%. The provision coverage ratio is maintained at
83%. The bank restructured loans worth Rs1 bn and the cumulative
restructured loan book stood at Rs 100 bn (7.4% of loan book).
 Contraction in NIMs: NIMs declined 4bps sequentially to 3.29% as yield
on advances declined 31 bps sequentially to 9.17%. This was partially
offset by decline in cost of deposits by 30 bps to 6.7%. We expect NIM to
remain around 3.25% in FY13.
Outlook & Valuation
At the CMP the stock is trading at 4.0x and 3.8x FY13E and FY14E EPS, and
at 0.8x and 0.7x FY14E and FY15E P/ABV respectively. We have maintained
our estimates and our price target at Rs175 valuing the stock at 0.9x FY15 and
maintain BUY rating on the stock.

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