Asset Quality concerns continue
In Q3FY13, Indian Overseas Bank’s (IOB) profits grew 7.6% YoY (down
26.5% QoQ) to Rs1.2 bn. Lower than our estimates of Rs1.8 bn on account
higher NPA provisions. NII grew 13.1% YoY (up 11% QoQ) to Rs 13.8 bn
and pre provision profits increased 23.7% YoY to Rs10.1 bn (up 26% QoQ)
higher than our estimate of Rs 8.8 bn. During the quarter, NIM improved
sequentially owing to increase in yield on advances and decline in cost of
deposits. However, asset quality continued its downward trend.
Loan Growth remains robust: Advances grew at 18.8% YoY (up 3.1%
QoQ), while deposits grew at a slower pace of 11.1% YoY (down 1.9%
QoQ). Consequently, C‐D ratio increased 403 bps sequentially to 83.4%.
CASA ratio remained flat at 25%.
Asset quality alarming: IOB’s asset quality continued to deteriorate
further owing to fresh slippages to Rs 10.9 bn (delinquency ratio of 2.8%).
Gross NPA increased 26 bps QoQ to 4.1% and net NPA increased 8 bps
QoQ to 2.3% It also restructured loans worth Rs 12.9 bn taking the
cumulative value of the restructured book to Rs 156 bn (10% of gross
loan book). Credit cost increased to 2.5% from 1.3% sequentially, while
its provision coverage ratio remained flat sequentially at 59%.
NIM bottoms out: NIMs improved by 18bps sequentially to 2.51% as
yield on advances improved 32 bps QoQ to 10.5%; this was further
complimented by decline in cost of deposits by 10 bps QoQ to 7.58%.
Outlook & Valuation
We believe, IOB’s asset quality pressures are yet to bottom out which would
continue to weigh on the banks profitability. At the CMP, the stock is trading
at 5.7x and 4.5x FY14E and FY15E earnings respectively, while the P/ABV is
trading at 0.7x and 0.6x FY14E and FY15E respectively. We have
downgraded our earnings estimates for FY14 and FY15 by 18% and 14%
respectively, owing to heightened asset quality concern. We therefore reduce
our price target by 19% to Rs 78 valuing the stock at 0.6x FY15E P/ABV and
maintain our SELL rating.
No comments:
Post a Comment