Business growth to stay slightly ahead of industry - Syndicate Bank :: ICICI Securities, PDF link

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Business growth to stay slightly ahead of industry
Syndicate Bank is a mid-sized PSU bank with close 3500 branches. In the
past eight years, it consistently grew its business above industry except in
FY10-11 wherein it went into consolidation phase. Post FY11, business
traction improved and was above industry at 17% CAGR in FY11-14 with
loans at | 173912 crore and deposits at | 212343 crore by FY14. Currently,
the book is diversified into corporate (36%), PSL (36%), retail (15%) and
MSME (14%). We have built in business CAGR of 17% over FY14-16E
with loans rising to | 232535 crore & deposits at | 296154 crore.
Expect margins to stay stable against management guidance of pick-up
Syndicate Bank’s NIMs declined to 2.3% in FY10 from 3% levels in FY07
owing to its focus on higher growth and also due to higher deterioration
in asset quality during FY10. However, in FY11-13, margins improved and
have stayed at ~3% due to shedding of bulk deposits (down to 17% in
FY13 from >25% in FY09), maintenance of CASA ratio at >30% levels
and controlled asset quality. However, in FY14, margins slipped
significantly to 2.52% mainly due to a sharp spurt in slippages to | 3628
crore from | 2142 crore in FY13 leading to a significant reversal of interest
income. We have built in calculated margins of ~2.5% over FY14-16E.
Asset quality slightly better than peers; H1FY15 bad in terms of NPA
The bank’s asset quality came under significant pressure in FY10 primarily
due to service sector followed by corporate & personal loans. However,
consolidation in asset growth brought in stability in asset quality with
GNPA ratio dropping to 2% as on FY13, which is relatively better than
peers. However, asset quality pressure has again emerged with GNPA
surging to 3.4% (highest in the past seven years) to | 6049 crore and RA
increasing to | 10736 crore or 6.2% of advances as on Q2FY15. PCR has
also declined to 65.4% from >80% in Q2FY15. We revise our GNPA
estimate upwards to | 7378 crore FY16E (3.2% of credit, earlier 3%).
Earnings traction to slide on NPA risks; maintain HOLD, reduce target
Driven by MAT credit, FY12 and FY13 return ratios seemed higher with
average RoA and RoE at ~0.8% and 17.5%, respectively. However, the
same was unavailable in FY14 due to which RoE dropped to 15.2% apart
from subdued operational performance (lower margins and enhanced
credit cost). We have marginally revised our FY15E GNPA estimates
upwards resulting in higher credit cost. Owing to asset quality pressure
FY16E RoA, RoE may be contained at 0.6%, 14.8%, respectively, while
the book value is expected to erode to | 141 from | 145 earlier. We have
accordingly reduced our target price to | 141 (1x FY16E ABV) and
maintained our HOLD rating on the stock but with a negative bias.

LINK
http://content.icicidirect.com/mailimages/IDirect_SyndicateBank_Q2FY15.pdf