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For 2QFY2012, Indian Overseas Bank (IOB) reported a weak performance with
muted net profit growth of 0.6% yoy, well below our as well as street expectation,
due to higher provisioning charges. Profit growth was also aided by a lower
effective tax rate (23.3%). We maintain our Accumulate view on the stock.
Strong business growth; but slippages double sequentially: During 2QFY2012,
business momentum for the bank was stronger than its peers, with sequential
advances and deposits growth of 4.5% (up 44.2% yoy) and 8.2% (up 38.5%
yoy), respectively. CASA deposits growth rate stood at 14.9% yoy, driven by
22.4% yoy growth in the more volatile current account deposits. Non-interest
income growth was healthy at 55.6% yoy to `427cr, with growth coming from all
sections. Cost of deposits for the bank increased by 40bp qoq to 7.2%. The qoq
rise in yield on advances (45bp) to 10.9%, however, managed to fully offset the
impact of cost of deposits, resulting in reported NIM remaining flat sequentially
at 2.9%. The bank’s asset quality deteriorated significantly during
2QFY2012, with provisioning charges increasing by 108.6% to `636cr.
For 2QFY2012, gross NPA ratio stood at 3.1% (2.8% in 1QFY2012) and net
NPA ratio stood at 1.2% (1.1%) in 1QFY2012. Provision coverage ratio
(including technical write-offs) weakened by ~173bp qoq to 71.8%.
Outlook and valuation: The bank had faced substantial asset-quality issues in
FY2010 due to which RoEs were depressed to 11.5%. From this low base, we
expect improvement in RoE to drive a 20.0% CAGR in earnings over FY2011-13E.
However, we also remain wary of further incremental asset-quality pressures that
could arise due to the bank’s aggressive lending to sensitive sectors over
2HFY2012. That said, at the CMP, the stock is trading at cheap valuations of 0.6x
FY2013E P/ABV, which provides margin of safety in our view. Hence, we maintain
our Accumulate rating on the stock with a target price of `107, valuing the stock
at 0.7x FY2013E ABV.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
For 2QFY2012, Indian Overseas Bank (IOB) reported a weak performance with
muted net profit growth of 0.6% yoy, well below our as well as street expectation,
due to higher provisioning charges. Profit growth was also aided by a lower
effective tax rate (23.3%). We maintain our Accumulate view on the stock.
Strong business growth; but slippages double sequentially: During 2QFY2012,
business momentum for the bank was stronger than its peers, with sequential
advances and deposits growth of 4.5% (up 44.2% yoy) and 8.2% (up 38.5%
yoy), respectively. CASA deposits growth rate stood at 14.9% yoy, driven by
22.4% yoy growth in the more volatile current account deposits. Non-interest
income growth was healthy at 55.6% yoy to `427cr, with growth coming from all
sections. Cost of deposits for the bank increased by 40bp qoq to 7.2%. The qoq
rise in yield on advances (45bp) to 10.9%, however, managed to fully offset the
impact of cost of deposits, resulting in reported NIM remaining flat sequentially
at 2.9%. The bank’s asset quality deteriorated significantly during
2QFY2012, with provisioning charges increasing by 108.6% to `636cr.
For 2QFY2012, gross NPA ratio stood at 3.1% (2.8% in 1QFY2012) and net
NPA ratio stood at 1.2% (1.1%) in 1QFY2012. Provision coverage ratio
(including technical write-offs) weakened by ~173bp qoq to 71.8%.
Outlook and valuation: The bank had faced substantial asset-quality issues in
FY2010 due to which RoEs were depressed to 11.5%. From this low base, we
expect improvement in RoE to drive a 20.0% CAGR in earnings over FY2011-13E.
However, we also remain wary of further incremental asset-quality pressures that
could arise due to the bank’s aggressive lending to sensitive sectors over
2HFY2012. That said, at the CMP, the stock is trading at cheap valuations of 0.6x
FY2013E P/ABV, which provides margin of safety in our view. Hence, we maintain
our Accumulate rating on the stock with a target price of `107, valuing the stock
at 0.7x FY2013E ABV.
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