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N I I i n l i n e , P A T a h e a d o f e x p e c t a t i o n s …
Syndicate Bank witnessed 15% YoY NII growth (4.4% QoQ de-growth) to
| 1111 crore in line with estimates. NIM improved 7 bps YoY (5 bps QoQ)
from 3.09% to 3.16% on better liability management. The yield on
advances stood at 10.2% (9.1% in Q1FY11) with spread being maintained
YoY at 3.8%. We expect NIM at 3% for FY12E supported by credit growth
of 16.3% and deposit growth of 17% for FY12E. Cost to income ratio
declined 3% YoY to 47% as staff cost was | 454 crore, lower than our
estimate of | 505 crore. On the back of lower operating expense and
lower effective tax rate at 17.6%, PAT grew 29% YoY (our estimate:
10.4% YoY) from | 265 crore to | 343 crore in Q1FY12. We maintain our
PAT estimates of | 1612 crore in FY13 with CAGR of 24% over FY11-13.
ƒ Core business driving net profit growth
NII increased from | 963 crore in Q1FY11 to | 1111 crore in Q1FY12
contributing | 148 crore to increase in net profit of | 78 crore YoY.
This shows the core business is doing well. Non-interest income
contributed | 75 crore YoY. This contribution to profit was offset by
| 67 crore increase in operating expenses and | 78 crore increase in
provisions. We expect NII growth of 17% CAGR over FY11-13E.
ƒ Asset quality to be monitored in near term
The bank is yet to transfer its loan book of below | 25 lakh to
system based recognition of NPA. We expect further slippages from
these accounts and estimate GNPA at | 2971 crore (currently at |
2637 crore) while NNPA is at | 1191 crore (now at | 1018 crore) for
FY12. Restructured assets were | 4534 crore, up | 6 crore QoQ as
slippages and recoveries offset each other. The bank has diversified
exposure to all sectors where its exposure to the power sector
stands at | 9000 crore (~8% of loan book) against industry at 7%.
The bank is confident of maintaining its asset quality while shifting
to 100% system based recognition and PCR of 78% looks sound.
V a l u a t i o n
The bank is not growing at the cost of spread, which helped them to
maintain NIM above 3% for the last five quarters. Strong core business
performance, diversified exposure and cheap valuations make Syndicate
Bank a good long-term bet. We maintain our target price of | 137 valuing
the bank at 1.1x FY13E ABV and recommend BUY rating
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
N I I i n l i n e , P A T a h e a d o f e x p e c t a t i o n s …
Syndicate Bank witnessed 15% YoY NII growth (4.4% QoQ de-growth) to
| 1111 crore in line with estimates. NIM improved 7 bps YoY (5 bps QoQ)
from 3.09% to 3.16% on better liability management. The yield on
advances stood at 10.2% (9.1% in Q1FY11) with spread being maintained
YoY at 3.8%. We expect NIM at 3% for FY12E supported by credit growth
of 16.3% and deposit growth of 17% for FY12E. Cost to income ratio
declined 3% YoY to 47% as staff cost was | 454 crore, lower than our
estimate of | 505 crore. On the back of lower operating expense and
lower effective tax rate at 17.6%, PAT grew 29% YoY (our estimate:
10.4% YoY) from | 265 crore to | 343 crore in Q1FY12. We maintain our
PAT estimates of | 1612 crore in FY13 with CAGR of 24% over FY11-13.
ƒ Core business driving net profit growth
NII increased from | 963 crore in Q1FY11 to | 1111 crore in Q1FY12
contributing | 148 crore to increase in net profit of | 78 crore YoY.
This shows the core business is doing well. Non-interest income
contributed | 75 crore YoY. This contribution to profit was offset by
| 67 crore increase in operating expenses and | 78 crore increase in
provisions. We expect NII growth of 17% CAGR over FY11-13E.
ƒ Asset quality to be monitored in near term
The bank is yet to transfer its loan book of below | 25 lakh to
system based recognition of NPA. We expect further slippages from
these accounts and estimate GNPA at | 2971 crore (currently at |
2637 crore) while NNPA is at | 1191 crore (now at | 1018 crore) for
FY12. Restructured assets were | 4534 crore, up | 6 crore QoQ as
slippages and recoveries offset each other. The bank has diversified
exposure to all sectors where its exposure to the power sector
stands at | 9000 crore (~8% of loan book) against industry at 7%.
The bank is confident of maintaining its asset quality while shifting
to 100% system based recognition and PCR of 78% looks sound.
V a l u a t i o n
The bank is not growing at the cost of spread, which helped them to
maintain NIM above 3% for the last five quarters. Strong core business
performance, diversified exposure and cheap valuations make Syndicate
Bank a good long-term bet. We maintain our target price of | 137 valuing
the bank at 1.1x FY13E ABV and recommend BUY rating
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