Syndicate Bank, Tax write-back boosts profitability…ICICI Sec

Tax write-back boosts profitability…
Profits were higher than our and Street estimate but were mainly driven
by tax write-back of | 174.3 crore (of which MAT credit is | 140.8 crore),
which may continue in Q4FY13. Tax rate for FY14E is expected to remain
low as MAT benefit created in FY13E may be used. At PBT level, results
were dismal with 11.8% YoY de-growth to | 334.2 crore (I-direct estimate:
| 488.3 crore) mainly on account of subdued NII growth. Yield on
advances dipped 16 bps QoQ to 10.7%. Even other income growth was
modest, which included trading income of | 90 crore. We have lowered
our NII estimate from | 6038 crore to | 5542 crore in FY13E and have
accounted for tax write-back that the bank has been taking. Syndicate is
one of the few PSU banks delivering stable asset quality. Hence, investors
can accumulate the stock on correction. At CMP, we recommend HOLD.
Business growth picks up pace, asset quality stable
Credit growth picked up pace with 17.3% YoY growth to | 136648 crore
(up by | 9867 crore QoQ) while deposit growth stood at 14.6% YoY to
| 164075 crore (up by | 8221 crore QoQ). CASA ratio was flat at 32%.
Incrementally, lending grew across sectors except SME. Overseas book
(London branch) increased by | 3346 crore QoQ to | 20301 crore.
Absolute GNPA declined by | 18.6 crore QoQ to | 3160 crore while
slippage trend continued with | 900 crore of fresh slippages in Q3FY13.
Upgradation and recoveries were strong enough to offset these
slippages. Fresh restructuring of | 1000 crore was done to take the total
outstanding restructured assets to ~| 10200 crore (7.6% of total credit).
Moving from consolidation to in line growth…
The bank is expected to move from consolidation phase to growth phase,
which is reflected in improved business growth performance. NIM is
expected to remain above 3%. The consolidation phase of the bank is
auguring well as it is resulting in moderate NPAs now. Its provision
coverage ratio of 83% provides comfort.
Return ratios to remain healthy
Capital infusion from government is expected in FY13E (| 539 crore
factored at | 130). Return ratios are expected to remain decent with RoA
of 0.8% & RoE of 15% in FY14E. Operational performance has improved
with NIM >3% but C/D ratio at ~80% & leverage >20x levels still remain
high. We recommend HOLD rating on the stock and maintain TP of | 140.

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