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A qoq decline in margins and a one-time provision for bad loans affected the 1QFY12 results.
Excluding delinquencies due to system-based NPL recognition, asset quality was largely stable.
Going forward, we expect margins and asset quality to remain stable. Buy as valuations look
undemanding.
1QFY12: margins down qoq and one-time NPL provision drags on PAT
Net interest income rose 18% yoy (down 7.4% qoq) on the back of 16.7% yoy loan growth (down
3.6% qoq). This was driven by a 7bp yoy improvement in net interest margin (NIM) to 3.1%. On a
qoq basis, NIMs dropped about 34bp, largely driven by about a 60bp increase in cost of funds
qoq. Core fee income posted weak 5% yoy growth. Provisions for bad loans were 24bp of loans
vs 7bp in 1QFY11 (10bp in 4QFY11). 1QFY12 includes about Rs1.9bn in a one-time provision
stemming from revised slab-wise provisioning rates as per RBI regulations. Reported gross
slippages increased qoq to Rs7.7bn, but, of this, about Rs5bn were non-performing loans (NPLs)
due to transition to a system-based NPL recognition.
Asset quality largely holding up: credit costs may surprise positively in FY12
The bank now recognises all NPLs, except those in the agriculture portfolio, on a system-driven
basis. According to management, NPLs in the agri portfolio will come under system-driven
recognition in 2QFY12. The management guides for about 2.0% GNPLs (2.6% as of June 2011)
by March 2012. We build in a largely stable NPL provision yoy at 79bp for FY12 (81bp in FY11).
Restructured loans totalled Rs58.4bn (facility-wise) as of June (4.0% of loan book).
FY12 management guidance and second-tranche GOI capital infusion likely in FY12
Management guides for 17% yoy deposit growth, 19% yoy loan growth, a 3.2% NIM (3.33% in
FY11) and a 1.25% RoA for FY12 (1.05% in FY11). The second tranche of capital infusion by the
Government of India of about Rs4.2bn is likely in FY12. However, at the current market price, we
do not expect this to have a material impact on book value. We do not factor this infusion into our
estimates. The tier-I was 8.82% as of June 2011.
Core earnings appear close to the trough: Buy maintained on attractive valuations
We cut our FY12-13F earnings about 5%, largely driven by the cut in net interest income. This
drives our target price lower to Rs349 from Rs370. At our target price, the stock would trade at
1.4x FY12F BV and 7.2x FY12F earnings.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
A qoq decline in margins and a one-time provision for bad loans affected the 1QFY12 results.
Excluding delinquencies due to system-based NPL recognition, asset quality was largely stable.
Going forward, we expect margins and asset quality to remain stable. Buy as valuations look
undemanding.
1QFY12: margins down qoq and one-time NPL provision drags on PAT
Net interest income rose 18% yoy (down 7.4% qoq) on the back of 16.7% yoy loan growth (down
3.6% qoq). This was driven by a 7bp yoy improvement in net interest margin (NIM) to 3.1%. On a
qoq basis, NIMs dropped about 34bp, largely driven by about a 60bp increase in cost of funds
qoq. Core fee income posted weak 5% yoy growth. Provisions for bad loans were 24bp of loans
vs 7bp in 1QFY11 (10bp in 4QFY11). 1QFY12 includes about Rs1.9bn in a one-time provision
stemming from revised slab-wise provisioning rates as per RBI regulations. Reported gross
slippages increased qoq to Rs7.7bn, but, of this, about Rs5bn were non-performing loans (NPLs)
due to transition to a system-based NPL recognition.
Asset quality largely holding up: credit costs may surprise positively in FY12
The bank now recognises all NPLs, except those in the agriculture portfolio, on a system-driven
basis. According to management, NPLs in the agri portfolio will come under system-driven
recognition in 2QFY12. The management guides for about 2.0% GNPLs (2.6% as of June 2011)
by March 2012. We build in a largely stable NPL provision yoy at 79bp for FY12 (81bp in FY11).
Restructured loans totalled Rs58.4bn (facility-wise) as of June (4.0% of loan book).
FY12 management guidance and second-tranche GOI capital infusion likely in FY12
Management guides for 17% yoy deposit growth, 19% yoy loan growth, a 3.2% NIM (3.33% in
FY11) and a 1.25% RoA for FY12 (1.05% in FY11). The second tranche of capital infusion by the
Government of India of about Rs4.2bn is likely in FY12. However, at the current market price, we
do not expect this to have a material impact on book value. We do not factor this infusion into our
estimates. The tier-I was 8.82% as of June 2011.
Core earnings appear close to the trough: Buy maintained on attractive valuations
We cut our FY12-13F earnings about 5%, largely driven by the cut in net interest income. This
drives our target price lower to Rs349 from Rs370. At our target price, the stock would trade at
1.4x FY12F BV and 7.2x FY12F earnings.
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