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The qoq decline in NIMs was lower than we expected in 1QFY12, and provisions for bad
loans have come down on the back of stable asset quality. The bank appears to be
moderating business growth and focusing on margins, which we view positively. We maintain
our Buy rating and raise our target price to Rs1,423.
1QFY12: business growth moderates
Net interest income (NII) was up 14% yoy (+1.4% qoq) on the back of about 21% yoy loan
growth (-7.4% qoq, see Chart 1). This was driven largely by a 43bp yoy decline in net interest
margin (NIM). Margins came down 16bp qoq, mainly on account of a 57bp increase in cost of
funds. Management expects NIMs to be in the range of 3.25-3.5% in FY12 (3.65% in FY11).
Core fee income was up 42% yoy at Rs10.6bn, which was better than we expected. Treasury
gains were about 5% of PBT in 1QFY12 compared with 17.5% in 1QFY11. Provisions for
bad loans were 10bp of loans this quarter, compared with 30bp in 1QFY11 (12bp in 4QFY11)
as asset quality held up qoq. Restructured loans at Rs21.5bn were 1.6% of the loan book as
of 30 June 2011.
Strong growth in core fee income despite moderation in loan growth
Fee income from the large and mid-sized corporate credit segment increased 81% yoy to
Rs4.1bn (39% of core fee income) on the back of about 17% yoy loan growth in this segment
and a 12% yoy decline in debt placement and syndication issuances. Retail fee income
increased 35% yoy to Rs2.8bn (26% of core fee income). A large part of the increase in retail
fee income came from the sale of third-party products such as life insurance, mutual funds, etc.
Asset quality appears largely stable
Gross NPLs were largely stable at 1.2% of loans, while the restructured loans were about 1.6%,
as of June 2011. On a one-year-lag basis, the delinquency ratio was 0.3% of loans compared
with 0.5% a year ago (see Table 2). While we have lowered the bad debt charge for FY12, we
have largely maintained the charge over FY13-14.
No material change in earnings forecasts; maintain Buy
Our earnings estimates are largely unchanged. The cut in our NII estimate for FY12 has been
largely offset by the lower provision for bad loans. The increase in our target price to Rs1,423 is
largely due to rolling forward our estimates. At our target price, the stock would trade at 2.8x
FY12F adjusted book value and 15.0x FY12F earnings
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The qoq decline in NIMs was lower than we expected in 1QFY12, and provisions for bad
loans have come down on the back of stable asset quality. The bank appears to be
moderating business growth and focusing on margins, which we view positively. We maintain
our Buy rating and raise our target price to Rs1,423.
1QFY12: business growth moderates
Net interest income (NII) was up 14% yoy (+1.4% qoq) on the back of about 21% yoy loan
growth (-7.4% qoq, see Chart 1). This was driven largely by a 43bp yoy decline in net interest
margin (NIM). Margins came down 16bp qoq, mainly on account of a 57bp increase in cost of
funds. Management expects NIMs to be in the range of 3.25-3.5% in FY12 (3.65% in FY11).
Core fee income was up 42% yoy at Rs10.6bn, which was better than we expected. Treasury
gains were about 5% of PBT in 1QFY12 compared with 17.5% in 1QFY11. Provisions for
bad loans were 10bp of loans this quarter, compared with 30bp in 1QFY11 (12bp in 4QFY11)
as asset quality held up qoq. Restructured loans at Rs21.5bn were 1.6% of the loan book as
of 30 June 2011.
Strong growth in core fee income despite moderation in loan growth
Fee income from the large and mid-sized corporate credit segment increased 81% yoy to
Rs4.1bn (39% of core fee income) on the back of about 17% yoy loan growth in this segment
and a 12% yoy decline in debt placement and syndication issuances. Retail fee income
increased 35% yoy to Rs2.8bn (26% of core fee income). A large part of the increase in retail
fee income came from the sale of third-party products such as life insurance, mutual funds, etc.
Asset quality appears largely stable
Gross NPLs were largely stable at 1.2% of loans, while the restructured loans were about 1.6%,
as of June 2011. On a one-year-lag basis, the delinquency ratio was 0.3% of loans compared
with 0.5% a year ago (see Table 2). While we have lowered the bad debt charge for FY12, we
have largely maintained the charge over FY13-14.
No material change in earnings forecasts; maintain Buy
Our earnings estimates are largely unchanged. The cut in our NII estimate for FY12 has been
largely offset by the lower provision for bad loans. The increase in our target price to Rs1,423 is
largely due to rolling forward our estimates. At our target price, the stock would trade at 2.8x
FY12F adjusted book value and 15.0x FY12F earnings
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