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India Banks
1Q12 Preview: Modest Quarter, But No Surprise
Moderation ahead: 7% profit growth (18% ex-SBI) — We estimate a modest 7% yoy
profit growth for Indian banks’ in 1Q12. Weak SBI expectations (-27% yoy) amplify the
slowdown, but even ex-SBI, growth should moderate to 18% yoy. Sector’s PPOP
growth (ex-trading gains) should slow to 16% yoy, slowest in the past seven quarters
as the impact of higher interest rates is reflected in operating parameters. Net interest
margins should decline, bond portfolios to be marked down and loan growth should
slow. In sum, a modest quarter, but also a widely expected one.
Key Trends to watch — Key operating trends: a) NIMs – expected to moderate (down
8bps qoq for the sector, -15bps ex-SBI); b) Bond markdowns – higher bond yields,
downside surprises possible as rates volatile in 1Q12; c) Loan growth - 21% yoy, fresh
sanctions (especially infrastructure) down to a trickle, further moderation expected; d)
Operating expenses – should normalize as one-offs in employee costs behind us
(+18% yoy); and e) Credit costs – should remain divergent; low for private banks,
elevated for public. Overall, the macro seems to be finally catching up with earnings
and 1Q12 could see pressures peaking; recovery however, is still uncertain (macro,
political challenges) and not expected before 2H12.
Key Stocks in Focus — Overall, private banks should outperform PSU banks
meaningfully in earnings (+27% for private, +10% for PSU ex-SBI) and key operating
parameters (NIMs, credit costs and earnings growth). Stock focus likely to be on: a)
SBI – expectations have been weak, downside surprise still possible (mainly on asset
quality), but so are upsides on NIMs, b) ICICI Bank – marginal NIM pressure, credit
costs to remain low, though growth could also slow, c) Axis – NIM likely down, asset
quality will be keenly watched, moderation in growth should be healthy, d) IDFC –
stable NIMs, lower than expected fees could however drag earnings, and e) Shriram
Transport – NIMs to slide further, but growth, asset quality should hold steady.
Continue to prefer private banks, strong deposit franchises — Preferred picks:
Axis Bank, SBI and IDFC
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Banks
1Q12 Preview: Modest Quarter, But No Surprise
Moderation ahead: 7% profit growth (18% ex-SBI) — We estimate a modest 7% yoy
profit growth for Indian banks’ in 1Q12. Weak SBI expectations (-27% yoy) amplify the
slowdown, but even ex-SBI, growth should moderate to 18% yoy. Sector’s PPOP
growth (ex-trading gains) should slow to 16% yoy, slowest in the past seven quarters
as the impact of higher interest rates is reflected in operating parameters. Net interest
margins should decline, bond portfolios to be marked down and loan growth should
slow. In sum, a modest quarter, but also a widely expected one.
Key Trends to watch — Key operating trends: a) NIMs – expected to moderate (down
8bps qoq for the sector, -15bps ex-SBI); b) Bond markdowns – higher bond yields,
downside surprises possible as rates volatile in 1Q12; c) Loan growth - 21% yoy, fresh
sanctions (especially infrastructure) down to a trickle, further moderation expected; d)
Operating expenses – should normalize as one-offs in employee costs behind us
(+18% yoy); and e) Credit costs – should remain divergent; low for private banks,
elevated for public. Overall, the macro seems to be finally catching up with earnings
and 1Q12 could see pressures peaking; recovery however, is still uncertain (macro,
political challenges) and not expected before 2H12.
Key Stocks in Focus — Overall, private banks should outperform PSU banks
meaningfully in earnings (+27% for private, +10% for PSU ex-SBI) and key operating
parameters (NIMs, credit costs and earnings growth). Stock focus likely to be on: a)
SBI – expectations have been weak, downside surprise still possible (mainly on asset
quality), but so are upsides on NIMs, b) ICICI Bank – marginal NIM pressure, credit
costs to remain low, though growth could also slow, c) Axis – NIM likely down, asset
quality will be keenly watched, moderation in growth should be healthy, d) IDFC –
stable NIMs, lower than expected fees could however drag earnings, and e) Shriram
Transport – NIMs to slide further, but growth, asset quality should hold steady.
Continue to prefer private banks, strong deposit franchises — Preferred picks:
Axis Bank, SBI and IDFC
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