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Indian Bank (INBK)
Banks/Financial Institutions
Few one-offs drive NPLs upwards. Indian Bank’s earnings growth of 13% yoy was
driven by healthy revenue growth (NIM expansion and strong non-interest income).
However, slippages were marginally higher-than-trend levels primarily due to few lumpy
SME loans. Post the transition, slippages have been around comfortable levels of 1.5%,
which is impressive. Valuations are attractive at 1X FY2012E book and 5X EPS for RoEs
at 19-20% levels. Maintain BUY with TP of `300.
Strong business performance with slippages normalizing under the new regime; maintain BUY
We expect Indian Bank to deliver RoEs in the range of 19-20% for FY2011-13E and earnings
growth of 11% CAGR (factoring reasonably higher provisions). Asset quality continues to remain
impressive with gross NPLs 1.2% and coverage ratio (including technically written-off portfolio) of
about 80%. Slippages over the past few quarters have been normalizing at 1.5% levels, especially
with no manual intervention firmly in practice. NIMs improvement of 33 bps provides some
comfort against any sharper-than-expected deterioration in loan book or adverse impact emerging
from higher deposit rates (savings rate de-regulation). We believe that the bank is inexpensive at
current levels of 1X FY2012E book and 5X EPS. We maintain our BUY rating with TP of `300.
Growth marginally ahead of industry average; CASA ratio stable at 30%
Indian Bank’s loans grew marginally ahead of industry average at 24% yoy qoq primarily driven by
large corporate segment (30% yoy, large-tickets loans like infrastructure and select one-off
opportunities). Retail and SME grew by 8-9% yoy, a cautious and positive approach in the current
environment. Deposits grew by 19% yoy (5% qoq) with CASA ratio stable qoq at 30% levels.
Slippages higher at 1.8% levels primarily from select lumpy SME loans
As compared to the previous quarter, where slippages declined below 1%, 2QFY12 saw higher
slippages of 1.8% primarily from select SME loans. Increase in slippages and relatively lower
upgradation/recoveries resulted in gross NPLs increasing 30% qoq to `10.5 bn (1.2% of loans)
while net NPL increased 42% qoq `6 bn (0.7% of loans).
Discussions with the management indicate that nearly 40% of the fresh slippages were from less
than 6-7 accounts (steel, sugar and textiles). Other slippages were from agriculture and retail
(education loans). Provision coverage ratio declined marginally to 79% from 84% in June 2011
while loan-loss provisions were at 0.6%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Indian Bank (INBK)
Banks/Financial Institutions
Few one-offs drive NPLs upwards. Indian Bank’s earnings growth of 13% yoy was
driven by healthy revenue growth (NIM expansion and strong non-interest income).
However, slippages were marginally higher-than-trend levels primarily due to few lumpy
SME loans. Post the transition, slippages have been around comfortable levels of 1.5%,
which is impressive. Valuations are attractive at 1X FY2012E book and 5X EPS for RoEs
at 19-20% levels. Maintain BUY with TP of `300.
Strong business performance with slippages normalizing under the new regime; maintain BUY
We expect Indian Bank to deliver RoEs in the range of 19-20% for FY2011-13E and earnings
growth of 11% CAGR (factoring reasonably higher provisions). Asset quality continues to remain
impressive with gross NPLs 1.2% and coverage ratio (including technically written-off portfolio) of
about 80%. Slippages over the past few quarters have been normalizing at 1.5% levels, especially
with no manual intervention firmly in practice. NIMs improvement of 33 bps provides some
comfort against any sharper-than-expected deterioration in loan book or adverse impact emerging
from higher deposit rates (savings rate de-regulation). We believe that the bank is inexpensive at
current levels of 1X FY2012E book and 5X EPS. We maintain our BUY rating with TP of `300.
Growth marginally ahead of industry average; CASA ratio stable at 30%
Indian Bank’s loans grew marginally ahead of industry average at 24% yoy qoq primarily driven by
large corporate segment (30% yoy, large-tickets loans like infrastructure and select one-off
opportunities). Retail and SME grew by 8-9% yoy, a cautious and positive approach in the current
environment. Deposits grew by 19% yoy (5% qoq) with CASA ratio stable qoq at 30% levels.
Slippages higher at 1.8% levels primarily from select lumpy SME loans
As compared to the previous quarter, where slippages declined below 1%, 2QFY12 saw higher
slippages of 1.8% primarily from select SME loans. Increase in slippages and relatively lower
upgradation/recoveries resulted in gross NPLs increasing 30% qoq to `10.5 bn (1.2% of loans)
while net NPL increased 42% qoq `6 bn (0.7% of loans).
Discussions with the management indicate that nearly 40% of the fresh slippages were from less
than 6-7 accounts (steel, sugar and textiles). Other slippages were from agriculture and retail
(education loans). Provision coverage ratio declined marginally to 79% from 84% in June 2011
while loan-loss provisions were at 0.6%.
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