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IDBI Bank's 1QFY12 ability to maintain NIMs on a qoq basis surprised positively, but negatively
on the slippages in the SME segment. We cut our earnings estimates due to lower core earnings
and higher bad loans provisions. Though our TP is lowered to Rs161, valuations still appear
attractive; maintain Buy.
1QFY12: positive surprise on NIMs; negative on slippages
Net interest margins (NIMs) improved to 2.07% in 1QFY12 vs 1.61% in 1QFY11 (2.07% in FY11,
see Chart 1). In 1QFY12, the yield on average loans (based on quarter-end data) improved 80bp
qoq to 11.0%. Further, cost of average interest-bearing liabilities increased 30bp qoq to 7.8%.
Core fee income fell 12% yoy in 1QFY12 (+23% yoy in FY11). Operating income before
provisions increased 24% yoy (+53% yoy in FY11). Note, the qoq net increase in GNPLs is about
Rs5bn and the net increase in net NPLs is Rs2.5bn. The provision coverage ratio (as per
Reserve Bank of India (RBI) norms) fell qoq to 74% from 74.7%. According to management,
about half of the fresh addition to gross NPLs of Rs6.2bn was from SME segment loans (see
Table 2).
Business growth moderates
Loans grew 14.6% yoy (down 1% qoq, including portfolio of IDBI Home Finance of about Rs30bn,
see Chart 2) while deposits grew 12% yoy (down 2.3% qoq). Within deposits, savings deposits
grew about 30% yoy while current deposits grew 66% yoy. Thus, the proportion of CASA
improved to 17.3% in 1QFY12 vs 13.0% a year ago (see Chart 3).
Provision for bad loans in 1QFY12; low tier-1 capital
The bank made provisions of Rs3.6bn for NPLs in 1QFY11, excluding Rs110m for restructured
loans. About Rs2.8bn of NPLs provision was due to the increase in slab-wise rates of
provisioning related to recent RBI norms. Tier-1 capital (excluding profits from 1QFY12) was at
8.1% as of June 2011. Given management’s expectation of muted loan growth in FY12 (about
15% yoy), the core tier-1 capital adequacy appears comfortable.
Earnings cut; target price lowered; Buy rating maintained
We cut our core earnings estimates and marginally increase provisions, leading to a 7-8% cut in
net profit over FY12-13F. This leads us to revise sustainable ROEs to 15% (from 16%) and lower
our SOTP-based target price to Rs161 from Rs181. We maintain our Buy rating.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
IDBI Bank's 1QFY12 ability to maintain NIMs on a qoq basis surprised positively, but negatively
on the slippages in the SME segment. We cut our earnings estimates due to lower core earnings
and higher bad loans provisions. Though our TP is lowered to Rs161, valuations still appear
attractive; maintain Buy.
1QFY12: positive surprise on NIMs; negative on slippages
Net interest margins (NIMs) improved to 2.07% in 1QFY12 vs 1.61% in 1QFY11 (2.07% in FY11,
see Chart 1). In 1QFY12, the yield on average loans (based on quarter-end data) improved 80bp
qoq to 11.0%. Further, cost of average interest-bearing liabilities increased 30bp qoq to 7.8%.
Core fee income fell 12% yoy in 1QFY12 (+23% yoy in FY11). Operating income before
provisions increased 24% yoy (+53% yoy in FY11). Note, the qoq net increase in GNPLs is about
Rs5bn and the net increase in net NPLs is Rs2.5bn. The provision coverage ratio (as per
Reserve Bank of India (RBI) norms) fell qoq to 74% from 74.7%. According to management,
about half of the fresh addition to gross NPLs of Rs6.2bn was from SME segment loans (see
Table 2).
Business growth moderates
Loans grew 14.6% yoy (down 1% qoq, including portfolio of IDBI Home Finance of about Rs30bn,
see Chart 2) while deposits grew 12% yoy (down 2.3% qoq). Within deposits, savings deposits
grew about 30% yoy while current deposits grew 66% yoy. Thus, the proportion of CASA
improved to 17.3% in 1QFY12 vs 13.0% a year ago (see Chart 3).
Provision for bad loans in 1QFY12; low tier-1 capital
The bank made provisions of Rs3.6bn for NPLs in 1QFY11, excluding Rs110m for restructured
loans. About Rs2.8bn of NPLs provision was due to the increase in slab-wise rates of
provisioning related to recent RBI norms. Tier-1 capital (excluding profits from 1QFY12) was at
8.1% as of June 2011. Given management’s expectation of muted loan growth in FY12 (about
15% yoy), the core tier-1 capital adequacy appears comfortable.
Earnings cut; target price lowered; Buy rating maintained
We cut our core earnings estimates and marginally increase provisions, leading to a 7-8% cut in
net profit over FY12-13F. This leads us to revise sustainable ROEs to 15% (from 16%) and lower
our SOTP-based target price to Rs161 from Rs181. We maintain our Buy rating.
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