Sell IDBI between Rs 69.05 & Rs 70. Sell BOB between Rs 1049.65 & Rs 1065 -Short tem sector momentum stock pick:: HDFC Securities

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IDBI Bank: CS fundamental view – Negative : Credit Suisse

 Low Tier 1 ratio (7.7% as of June
2013) and CAR of 12.6% but regular infusion of equity by the government.
 Profitable track record with net interest
margin of more than 2% and adequate liquidity.
 We have a Negative fundamental view
on IDBI, though eventual credit/default
risk is low.
Neel Gopalakrishnan
neel.gopalakrishnan@credit-suisse.com, +65 6212 2045
Q1 results show further asset quality weakness
IDBI Bank’s results for the first quarter of FY 2014 (year ending March) showed further deterioration in its asset quality.
While this is a trend seen in most Indian banks, we view IDBI’s
asset quality as below-par relative to most Indian banks. The
reported gross non-performing loans ratio (NPL) was 4.3% as
of June 2013, up from 3.2% in March 2013 and 2.5% in
March 2012. However, the bank also reported restructured assets amounting to around 7.5% of gross loans (around 7% as
of March 2013). Hence, the aggregate weak loans of around
12% is relatively high, though the bank does not expect a significant slippage of restructured loans back into NPLs. Given
the slowdown in the Indian economy following a period of rapid
credit growth, we believe NPLs will likely rise further in the
near term. Indeed, at the conference call following Q1 earnings, IDBI management said that it has one large exposure to
a textile company that will likely turn non performing near term.
While it said it had no other major single-name exposures, we
believe on an aggregate basis, asset quality has room to deteriorate further before stabilizing.
IDBI Bank’s capitalization is relatively low. As of June
2013, it reported a Tier 1 capital ratio of only 7.7% and a total
CAR of 12.6%. However, the Indian government has a track
record of recapitalizing banks when the T1 ratio falls below

Angel Broking - IDBI Bank - RU4QFY2012 - Result Updates - PDF link

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IDBI Bank - RU4QFY2012

Hold IDBI Bank; Target : Rs 98 ::ICICI Securities

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A l l - r o u n d   d i s a p p o i n t i n g   s h o w …
Pre-provisioning profit was sub-standard with 27.3% YoY and 18.1% QoQ
de-growth to | 824.3 crore (I direct estimate: | 1054.8 crore).
Consequently, PAT witnessed 9.7% YoY de-growth to | 409.8 crore (I
direct estimate: | 503.6 crore). Tax  provisions were low as the bank
benefited from accounting adjustment on deferred tax liability.
Credit growth was in line with estimates at 16.2% YoY growth to | 156217
crore. The management has guided credit growth of 15-16% YoY in
Q4FY12 mainly led by disbursement for priority sector lending target. We
estimate PAT will grow at 9.2% CAGR to | 1968.5 crore, over FY11-13E.
ƒ Below par PPP performance disappoints…
PPP was lower than estimates as the bank disappointed on all fronts
including NII, other income and operational expense. NII growth was
sluggish as NIM dipped 11 bps QoQ to 1.9%. Other income declined
3.4% YoY and 9.9% QoQ to | 431.8 crore due to slowdown in
activity of syndication, advisory & project appraisal. Operating
expense soared due to provision for new pension scheme.
ƒ Asset quality deteriorates but provision in line due to write-back…
GNPA surged 19.3% QoQ to | 4640 crore as incremental slippages
stood at | 1234 crore, of which | 696 crore was on account of a
single aviation company, which slipped from standard restructured
category to NPA. GNPA ratio and NNPA ratio witnessed a sharp
uptick from 2.5% and 1.6% in Q2FY12 to 2.9% and 2%, respectively,
in Q3FY12. Gross restructured assets were | 1389 crore, primarily
on account of a single telecom infra account worth | 770 crore.
NPV hit of ~| 100 crore has been taken as restructuring provision
for the telecom infra account. Provisions of | 406.4 crore were
recorded with NPA provision at | 358 crore and restructured
provision at | 134 crore. Write-back of | 85 crore on investment
provision was made as NCD was converted to quoted equity shares.
V a l u a t i o n
Exposure to stressed sectors may dent profitability on account of higher
provisions and lower NII due to interest income reversal. Return ratios
may get curtailed on account of lower profitability. We value the bank at
0.8x FY13E ABV to | 85 and have halved investment book value to | 13
due to gloomy market conditions. We rate stock as HOLD with TP of | 98.

Margins under pressure for IDBI Bank:: CSEC Research

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Margins under pressure

IDBI Bank’s revenues and operating profit were lower than expected.  Slow credit growth and rise in cost of fund contributed to the decline in profits.  Chunky slippages also saw a decline in asset quality.

Quarterly Highlights

·         Top-line lower than expected

·         PAT down 9.7% YoY at Rs 4.1bn

·         Credit growth at 16.2%YoY

·         Deposit growth healthy at 17.9%YoY

·         CASA improves to 19.2% up 414bps

·         Asset quality healthy deteriorates, net NPLs at 2%

·         Chunk of slippage from a single account

·         Spreads under pressure

·         Net interest down 12%YoY

·         Operating profits down 27.3%YoY

Valuation

At current levels the stock trades at 0.8X FY13E adjusted book value and 6.95X FY13E EPS. We rate the stock an OUTPERFORMER with a target price of Rs 151. The bank has strategic stakes in NSE, CARE and several other unlisted entities in the financial services space. These investments are expected to provide down-side cushion. Key risks include a lower than expected CASA composition and greater than expected slippages.

 

Regards,

CSEC Research

 

IDBI Bank: Q3FY12 –Asset quality concerns continue for the bank • GEPL

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Q3FY12 –Asset quality concerns continue for the bank
• The bank reported a negative PAT growth of 9.7% Y-o-Y in Q3FY12 mainly due to fall in margins
and 26.8% growth in provisions Q-o-Q basis.
• Advances have grown by 16.2% Y-o-Y and deposits grew by 17.9% Y-o-Y in Q3FY12 keeping
Credit Deposit Ratio (CD ratio) elevated at 88.2% during the quarter.
• NIM stood at 1.9% in Q3FY12 vs 2.0% in Q2FY12 and 2.4% in Q3FY11.
• Cost to income ratio jumped to 44.7% in Q3FY12 vs 31.3% in Q3FY11.
• Asset quality deteriorated sequentially as Gross NPA stood at 2.9% in Q3FY12 vs 2.5% in Q2FY12.
This led to growth of 26.8% in provisions Q-o-Q in Q3FY12.
• The bank had tax provision of just 1.9% in Q3FY12 due to change in accounting for DTL.
• At present, the bank has network of 933 branches and 1518 ATMs.
Result Highlights
Margins continue southward journey due to yields impacted by NPAs
Margin fell further to 1.9% in Q3FY12 as cost of funds inched higher for the bank. This was due to a
large chunk of its funding (~44%) coming from high cost bulk deposits. On the other hand yield on
funds have not moved up in tandem with the rise in cost of funds and fresh slippages which has led
to reversal of interest income on these accounts and lower yielding assets on banks books. CASA
deposits stood at 19.67% in Q3FY12 vs 19.2% in Q2FY12 and 15.1% in Q3FY11.
Business growth in line with industry
Advances and deposits have grown in-line with industry but the banks focus for credit growth still
remains in agri segment to comply with Priority sector lending norm. The proportion of agri
segment in total advances has moved to 7.6% in Q3FY12 vs 6.9% in Q2FY12. Proportion of SME
segment has come down to 5.7% in Q3FY12 vs 6.2% in Q2FY12. The management still maintains its
guidance of below industry growth in FY12E.
Asset quality concerns get dipper
The bank’s asset quality has deteriorated sequentially as GNPA grew by 19.3% Q-o-Q in Q3FY12.
Major contribution to NPAs is from service segment as its NPA has moved to 4.56% in Q3FY12 from
1.23% in Q2FY12. Fresh slippages have moved up to 0.8% in Q3FY12 vs 0.6% in Q2FY12. Recoveries
and up gradations have shown declining trend sequentially leading to worsening asset quality.
Valuation & Viewpoint
The bank is set on consolidation phase but concerns on asset quality are getting deeper as NPAs
have continuously increased from last four quarters. Asset quality remains the key concern of the
bank and improvement in it can lead to higher valuation for the stock. At the CMP, the stock is
trading at 0.67x and 0.62x Book value of FY12E and FY13E respectively.

IDBI Bank :: Avendus 2012 top ideas

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Rise in NIM, improved liability‐mix may drive the rebound
 Improvement in the deposit mix along with a rise in the proportion
and growth in savings deposits have been key positives in the past few
quarters. While rise in slippages and NPL ratios are concern areas, the
decline in outstanding restructured loans is a positive. Despite rising
NPLs, net profit growth in 1HFY12 was 25% y‐o‐y, ahead of most peers.
The slippage in restructured loans in 1HFY12 has stayed below that in
FY11. Improvement in the concern areas is underway and may lead to
a rebound in valuations over the next 12 months. Our FY12‐FY14
forecasts for NPL provisions have been raised by 8‐bp to 0.63%, while
those for net profit have been lowered by up to 12%. We roll over the
TP to Dec12 and lower it to INR148. Maintain Buy. High slippages and
rising NPL provisions are key risk factors.
Large value, even if we exclude the value of subsidiaries
Our Dec12 TP implies a potential return of c83% over the next 12‐month
period. The TP values IDBI, including strategic investments, at a one‐year
forward adjusted P/B of 1.0x. We value the core banking business at 0.8x P/B. If
the P/B returns to the normal mean of 0.8x (by applying a 10% de‐rating to the
FY11 P/B) during FY10‐FY11, the potential upside may be c79%.
Rising NPLs; large restructured book drove underperformance in 2011
In 2011, IDBI underperformed the CNXPSBK and the Nifty by 9% and 27%,
respectively. The large underperformance was driven by a rise in slippages and
the concerns on rising NPLs from restructured loans. Gross and net NPL ratios
increased by 71‐bp and 51‐bp to 2.47% and 1.57%, respectively, in 1HFY12.
Restructured loans as a percentage of total loans declined to 5.7% at end
Sep11. Despite rising NPLs, PAT growth in 1HFY12 was 25% y‐o‐y.
Large upside, even if the worse case is applied
If the worst‐case scenario is applied for FY12f‐FY14f – incremental NPL, net NPL
ratio and NPL provisions/assets at 1.33%, 2.12% and 0.97%, respectively (46‐
bp, 32‐bp and 34‐bp higher than the base case) – the DCF fair value falls 11% to
INR155/share. The CMP implies a distress scenario for asset quality, net NPL
ratio at 3.4% and NPL provision/assets at 2.0%. With other forecasts remaining
same, the CMP also implies a cumulative loss of INR27.9bn over FY12f‐FY14f.
We forecast 38‐bp NIM expansion during FY12f‐FY14f
We forecast a 38‐bp rise in NIM to 2.21% till FY14, partly driven by savings
deposits growth, which has stayed above 30% in the past two quarters despite
a sharp rise in rates. We estimate a CAGR of 14% in PAT over FY12f‐FY14f. After
the decline in FY12, RoE is forecast to rise by 150‐bp to 15.0% in FY14.
Rollover TP to Dec12; Maintain Buy
We value IDBI using a combination of the DCF, P/E and P/B methods. For the
semi‐explicit period, we assume a CAGR of 14% in loans and RoA of 0.80%. We
raise our forecast for NPL provisions by 8‐bp to 0.63% and lower our PAT
forecast by up to 12%. We roll over the TP to Dec12 and lower it marginally to
INR148. Maintain Buy. High slippages and rising NPL provisions are risk factors.


Link to main report and other companies

Deep value holds promise of strong rebound :: Avendus

IDBI Bank – Concerns and lack of triggers :: RBS

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IDBI Bank's asset quality disappointed yet again in 2QFY12. Further, management expects no
significant improvement in asset quality in 2HFY12. The bank plans to focus on CASA
improvement, meeting priority sector requirements and targets a muted yoy loan growth in FY12.
We downgrade the stock to Hold.

IDBI Bank 2QFY2012 result review: Angel Broking,

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For 2QFY2012, IDBI Bank reported 20.2% yoy growth in its net profit to `516cr,
which was well above our as well as street estimates, primarily on account of
lower-than-estimated provisioning and operating expenses and a lower effective
tax rate. A marginal qoq compression in NIM despite strong traction in CASA
balances and continuation of the deteriorating asset-quality trend were the key
highlights of the result. We maintain our Neutral view on the stock.
Healthy CASA traction; asset quality continues to deteriorate: For 2QFY2012, the
bank’s advances grew marginally by 0.6% qoq (up 19.7% yoy). Deposits declined
marginally by 1.0% qoq (up 13.0% yoy). CASA deposits growth continued to be
healthy at 42.2% yoy (up 9.9% qoq), leading to a 393bp yoy improvement in
CASA ratio to 19.2%. The surge in CASA deposits was led by robust 67.2% yoy
growth in saving account deposits. In spite of the increase in share of CASA in the
funding mix, reported NIM of the bank contracted, albeit marginally, by 7bp qoq
to 2.0%. On the asset-quality front, the deteriorating trend continued with the
annualised gross slippage ratio rising to 2.4% from 1.6% in 1QFY2012.
Slippages in 1HFY2012 have been on the higher side considering that the bank
had already switched over to system-based NPA recognition platform.
Consequently, gross and net NPA ratios rose to 2.5% and 1.6%, respectively, and
provision coverage ratio including technical write-offs fell to 70.1% (74.0% in
1QFY2012). Profitability in 2QFY2012 was aided by a lower effective tax rate (at
24.8%) as against management’s guidance of 30-32%.
Outlook and valuation: We believe the bank is set to improve its credit and
deposit mix going forward on the back of its strong branch expansion plans.
The bank has been amongst the fastest-growing banks in terms of CASA deposits
over the past few years even when compared to private banks and has a market
share of 2.1% (as of FY2011). At the CMP, the stock is trading at attractive
valuations of 0.9x FY2013E P/ABV adjusting for SASF (0.7x without adjusting).
However, considering the near-term cyclical headwinds to the asset quality,
we remain Neutral on the stock.

IDBI Bank:: ::: 2QFY2012 earning review by Angel Broking,

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IDBI Bank
For 2QFY2012, IDBI Bank reported 20.2% yoy growth in its net profit to
`516cr, which was above our as well as street estimates, primarily on account
of lower-than-estimated provisioning and operating expenses and a lower
effective tax rate. A marginal qoq compression in NIM in spite of strong
traction in CASA balances and continuation of the deteriorating asset-quality
trend was the key highlights of the result.
Healthy CASA traction; asset quality continues to deteriorate: For 2QFY2012,
the bank’s advances grew marginally by 0.6% qoq (up 19.7% yoy). Deposits
declined marginally by 1.0% qoq (up 13.0% yoy). CASA deposits growth
continued to be healthy at 42.2% yoy (9.9% qoq), leading to a 393bp yoy
improvement in CASA ratio to 19.2%. The surge in CASA deposits was led by
robust 67.2% yoy growth in saving account deposits. In spite of the increase in
share of CASA in the funding mix, reported NIM of the bank contracted, albeit
marginally by 7bp, to 2.0%. On the asset-quality front, the deteriorating trend
continued with the annualized gross slippage ratio rising to 2.4% from 1.6% in

1QFY2012. Slippages in 1HFY2012 have been on the higher side,
considering the fact that the bank had already switched over to system-based
NPA recognition platform. Consequently, gross and net NPA ratios rose to
2.5% and 1.6%, respectively, and provision coverage ratio including technical
write-offs fell to 70.1% (74.0% in 1QFY2012). Profitability in 2QFY2012 was
aided by a lower effective tax rate (at 24.8%) as against management’s
guidance of 30-32%.
Outlook and valuation: We believe the bank is set to improve its credit and
deposit mix going forward, on the back of its strong branch expansion plans.
The bank has been amongst the fastest-growing banks in terms of CASA
deposits over the past few years even when compared to private banks and
now has a market share of ~2.1%. At the CMP, the stock is trading at 0.9x
FY2013E P/ABV, adjusting for SASF (0.7x without adjusting). However, in our
view, there are near-term cyclical headwinds to asset quality. Hence,
we remain Neutral on the stock.

IDBI Bank::Takeaways Motilal Oswal Annual Global Investor Conferences

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Key Takeaways
Asset quality pressure to abate in 2HFY12
 During 1QFY12, gross slippages were INR6.2b (annualized slippage ratio of 1.6%).
Higher slippages were led by the SME segment (~50% of total slippages) due to
sub-optimal backend processes.
 While slippages could remain high in 2QFY12 as bank further improves its back-end
process it is expected to decline significantly in 2HFY12. Management has guide for
slippage ratio of 1.3-1.5% as against 1.4% in FY11.
Consolidating growth to improve balance sheet profile
 IDBI Bank is focusing on reducing the proportion of bulk business and is accordingly
guiding loan book growth of 15% and deposit growth of 12-15%.
 On the asset side, the focus would be on SME and retail housing loans, which are
relatively higher yielding, while on the liabilities side, the bank intends to focus
more on CASA deposits and retail term deposits.
 IDBI Bank had introduced schemes such as waiver of minimum balance and service
charges, which bore fruitful results, with the bank adding 1.4m savings accounts in
the last one year. IDBI Bank expects CASA ratio to improve to 20% in FY12 and to
25% by FY13 from ~17% in 1QFY12.
Margins to trend upwards
 In a favorable interest rate scenario, IDBI Bank has been able to gradually improve
its margins over the past three years from 0.4% in 1QFY09 to 2% in 1QFY12,
despite a large proportion of bulk business.
 Going forward improving liability profile and increasing proportion of high yielding
loan would provide cushion to NIMs. Management has guided for NIM of 2.2% and
2.6% for FY12 and FY13 respectively as against 2.1% in FY11.
Other highlights
 Fee income growth is likely to moderate to 12-15% on the back of moderation in
loan growth and higher base catching up.
 The management targets RoA of 0.9% for FY12 and 1%+ for FY13.
Valuation and view
 While IDBI Bank's NIM has improved from 1.3% in FY10 to 2%, it still remains one of
the lowest in the industry. The bank is in the process of restructuring its balance
sheet and is willing to sacrifice growth to improve profitability parameters. However,
in our view, the high share of bulk deposits and low CASA ratio remains a risk.
 IDBI Bank has some strategic investments which we have not considered in our
valuations. The stock trades at 0.7x FY13E ABV. Neutral.

IDBI Bank – Some positives and negatives :RBS

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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.

IDBI Bank – 1QFY12: Stable NIMs qoq; asset quality slips:RBS

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NII marginally better than estimates, stable NIMs qoq
􀀟 Net interest income (adjusted for interest income on income tax refund) was up 32% yoy (flat
qoq) and is slightly better than our estimate.
􀀟 The reported net interest margin remained largely stable qoq at about 2.1% (+46bps yoy).
􀀟 Total other income was down 9% yoy and came in lower than estimates. Core fee income
declined 16% yoy.
􀀟 Operating costs increased about 14% yoy. The cost to income ratio (excluding treasury gains)
was about 35% in 1QFY12 (37% in 1QFY11)
􀀟 Provisions for bad loans were 24bps of loans in 1QFY12 compared to 10bps in 4QFY11.
Note, the 1QFY12 provision includes one time provision of Rs 2.8bn on account of increase in
RBI’s provisioning slab rates for bad loans and provision on standard restructured loans.
Excluding this, the provision charge appears low.
􀀟 Provision for income tax is 45% of PBT vs. 24% a year ago.
􀀟 Net profit at Rs 3.35bn (+ 34% yoy) is largely in line with our estimate of Rs 3.5bn
Asset quality and business growth
􀀟 Asset quality slipped on qoq basis, partly on account of slippages in the SME segment. Gross
NPLs at 2.1% (Rs 32.9bn) as of June 2011 (1.8% - Rs 27.8bn as of March 2011) and net
NPLs are 1.25% as of June 2011 (1.06% as of March 2011). Note, the qoq net increase in
GNPLs is about Rs 5bn and the net increase in net NPLs is Rs 2.5bn. The reported provision
coverage ratio came down qoq to 74% from 74.7%.
􀀟 Loan book grew 14.6% yoy (-1.3% qoq) to Rs 1,550 bn as of June 2011. The SME segment
constituted about 9% of total loans as of March 2011.
􀀟 Deposits grew 12% yoy (-2.3% qoq). The low cost deposits (CASA) improved about 430bps
yoy to 17.3% as of June 2011. Of this, savings deposits constitute 7.7% (+120bps yoy) and
current deposits constitute 9.6% (+310bps yoy)
􀀟 The reported tier I capital ratio was 8.1% as of June 2011.
Profitability and valuation
􀀟 The reported EPS was Rs 3.4in 1QFY12 (Rs 18.4in FY11). The book value was Rs 138 and
the adjusted (for net NPLs) book value was Rs 112 as of June 2011
􀀟 The return on assets (annualised ) was 54bps in 1QFY12 (73bps in FY11)
􀀟 At the current market price, the stock trades at 5.8x FY12F earnings and 0.9x FY12F BV. We
have a Buy rating on IDBI Bank.

Buy IDBI Bank; Target : Rs 165:: ICICI Securities

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M a r g i n s   s u s t a i n ,   a s s e t   q u a l i t  y   a   d a m p e n e r …
IDBI maintained its margins at 2.07% while NII exceeded our expectations
at | 1152 crore (up 4% QoQ). This was despite business mix contracting
2% QoQ to | 3.31,266 crore. Fee income declined 38% QoQ due to lower
processing & syndication fee. Provisions shot up 51% QoQ as IDBI
provided | 279 crore for changed norms for asset quality despite a writeback of | 92 crore on investment depreciation. Consequently, PAT came
in  below  expectations  at  |  335  crore.  The  bank  also  merged  IDBI  Home
Finance (contributed | 18 crore to PAT) and IDBI Gilts Ltd (loss making)
this quarter. Asset quality declined as slippages of | 622 crore pushed up
GNPA to 2.1% (up 34 bps QoQ). We have factored in lower credit growth
of 15% YoY and higher provisions in FY12E. We expect business to grow
at 17% CAGR leading to PAT growth of 20% CAGR over FY11-13E.
ƒ NIM maintained QoQ at 2.07% despite CASA deflating to 17.3%...
Calibrated growth and passing on of costs helped IDBI maintain NIM
at 2.07% (down 3 bps QoQ). This was despite CASA declining QoQ
from 20.9% to 17.3% (outgo of  one-off current accounts from
Q4FY11) and CoF rising 54 bps QoQ to 7.99%. We expect pressure
on NIM to be visible in Q2FY11 & see full year NIM at 2% in FY12E.
ƒ Asset quality concerns persist…
GNPA shot up 18.1% QoQ to | 3288 crore (GNPA ratio@ 2.1%) due
to higher slippages at | 622 crore (50% SME and remaining from
mid-large corp). NNPA rose 15.2% QoQ to | 1933 crore (NNPA ratio
@1.25%) as | 112 crore was transferred from provisions to countercyclical buffer. PCR is healthy at 74%. We see incremental slippages
pushing up GNPA ratio to 1.9% and NNPA ratio to 1% by FY13E.
ƒ Other takeaways from conference call…
IDBI aims to increase its current branch network of 883 branches to
~1050 by FY12E, which would weigh on opex. Effective tax rate was
high at 44.6% as certain provisions were not tax deductible. The
management has guided for a normal tax rate at 27-28% as MAT
credit entitlements and other benefits have been used up.
V a l u a t i o n
Higher provisioning dented profits leading to lower return ratios with RoA
at 0.54% and RoE at 10.4% in Q1FY12. Calibrated growth and focus on
CASA augur well in the long-term but asset quality woes may remain. We
have valued the bank at 1.1x FY13E  and ascribed | 25 to its investment
book arriving at a target price of | 160.

IDBI Bank - "Asset quality and CASA concern push back estimate"::LKP

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Key highlights

Ø  IDBI Bank reported PAT growth of 34%/(35%) yoy/qoq led by NII growth of 35%/4% yoy/qoq .

Ø  NIMs during the quarter were higher yoy and stable qoq at 2.1% v/s 1.6%/2.1% yoy/qoq. The management has guided for NIMs of 2.1-2.2% during FY12.

Ø  The loan book grew 15%/(1.3%) yoy/qoq, at higher yields of 9.8% v/s 8.5%/9.2% yoy/qoq. Loan growth was driven by retail (50%/1.2% yoy/qoq) and SME (18%/(6%) yoy/qoq) while corporate assets grew by 7%/(0.1%) yoy/qoq. While the CD ratio remained marginally higher, term deposits grew by 7%/2% yoy/qoq and CASA by 50%/(19%).  On a qoq basis both current and savings account balances were under pressure as average balances declined (despite increase in no. of accounts). Thus the share of CASA at 17% declined on a yoy basis 21%/13% yoy/qoq.  The bank has retained its approach on CASA for the past 3 quarters. However, external factors such as low liquidity and a tight monetary policy are impacting CA and SA growth.  The management has guided for a 17-18% CASA target for FY12.

Ø  Gross npas were 2.1% v/s 1.9%/1.8 yoy/qoq and net npas were1.3% v/s 1.2%/1.1% yoy/qoq. On an absolute basis gross npas and net npas were higher 25%/18% and 20%/15% yoy/qoq.  Slippages were lower at Rs6220 mn v/s Rs19,580 mn qoq, however lower write offs and recoveries translated in higher gross npas. Major share of slippages were on account of SME (~50%), mid corporate portfolio. Although the management expects that mid corporate accounts will get upgraded over the next 3 quarters, SME may see prolonged stress. The management has increased slippage guidance for FY12 from 1.2% to 1.5%. Provisioning was lower yoy at (15%)/51% yoy/qoq, mainly on account of a reversal of Rs920 mn for ARCIL security receipts.

Ø  Non-interest income was lower by (8%)/(36%) yoy/qoq mainly on account of lower fee income by (12%)/(38%) yoy/qoq due to lower syndication and project appraisal fees during the quarter.

Ø  Operating costs increased by 14%/11% yoy/qoq and C/I ratios were 35% v/s 37%/35% yoy/qoq. The bank has increased branches to 883 in June 2011 from 813 in March 2011 and the management has guided for 1050 branches by March2012. Also the run rate of employee expenses is likely to increase in Q3 and Q4 of FY12.

Ø  The bank had a CAR of 13.8% with tier I of 8.3%. The management expects a 15% loan growth over FY12 and Tier I to reach 7.1-7.5% and capital raising will happen in FY13.

Ø  The bank has merged housing finance and IDBI gilts subsidiary which increased PAT by Rs180 mn (IDBI gilt was loss making FY11), NII by Rs80-100 mn, and asset size by Rs30 bn and networth by Rs1800-2000 mn during the quarter. There is no material impact to CAR and borrowings as the major source of funding for the subsidiaries was the parent company.

Ø  Tax rate during the quarter was higher as provisions for npas, investments and some tax provisions were added back during the quarter. Additions to provisions based on RBI changed norms were Rs2,790 mn, which were not eligible for tax deductions. Thus excluding these items the normalized tax rate was 27-28%.

Valuation and Outlook

The management has guided for a lower loan book growth of 15% in FY12 and NIMs contraction to 2.1-2.5% as compared to 2.4% in Q1FY12. Similarly CASA target has been reduced to 17-18% v/s 25% for FY12 and slippages are likely to increase from 1.2% to 1.5% in FY12. We believe that in addition to the above the bank is likely to face additional pressure on growth, margins and asset quality. We have reduced our loan book growth from 19% CAGR to 14% CAGR over FY11-13E and balance sheet growth from 14% to 10% FY11-13E. We believe that NII is expected to grow at 19% v/s 27%, operating income at 18% v/s 24%, PAT at 23% v/s 32% CAGR FY11-13E.

Adjusted for subsidiary valuations, the stock trades at P/ABV 0.8x FY12 and 0.7x on FY13. We have revised downwards our ABV to Rs118.9 from Rs121.2 and Rs140.2 from Rs143.2 for FY12 and FY13. We have valued the bank at a 1x multiple on FY13 ABV. We have revised downwards our target price from Rs189 per share to Rs170 per share. BUY

IDBI Bank: Management meeting:: BNP Paribas,

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Management meeting
ƒ IDBI's management driving focus on CASA and profitability
ƒ Targeting calibrated loan growth with higher share of retail
ƒ Young workforce drives lower opex ratio, higher efficiency
ƒ Trading at 0.85x consensus FY12 ABV
We met top management of IDBI Bank
(IDBI), a mid sized public sector bank with
816 branches and a loan book of US35b
as of March 2011. We present the key
highlights of our discussion.
Multi-pronged transformation
IDBI’s top management team under the
stewardship of RM Malla, who joined in
July 2010, has been targeting a strategic
transformation over the last few quarters.
1) IDBI says its focus on CASA deposits
through branch network expansion, better
service, and schemes such as waiver of transaction charges has helped
improve the CASA ratio to 21% for FY11 from 15% in FY10. The bank is
guiding toward improving the ratio to 24-25% by March 2012 and 30% by
March 2013. 2) IDBI says it has calibrated its loan book growth toward
improving net interest margins (through less reliance on wholesale
funding) and toward increased priority sector compliance. IDBI expects
15-18% loan book growth for FY12 and NIM of 2.2-2.3%, while it expects
priority sector loans to meet the RBI’s requirement by FY13. 3) IDBI is
aiming to change its loan book mix toward a retail share of 40-50% (19%
at March 2011) in the next 3-4 years, and a higher proportion of SME
loans. The bank expects 30-40% growth in SME and retail portfolio over
FY12-13. The recent merger of IDBI’s home finance subsidiary into the
bank will help consolidate its mortgage market share, according to
management. 4) IDBI has increased its focus on risk management,
moving away from big-ticket exposures and diversifying its loan portfolio.
IDBI is aiming for 80-90bp ROA by FY12 and at least 1% ROA by FY13.
Younger workforce driving change, says IDBI
IDBI says its young workforce (average age of 31 years) has helped in
seamless redeployment of the resource from the asset to the liability
side. This helped contain the opex ratio at 35% for FY11 despite addition
of over 300 branches since March 2009, according to management. The
bank also expects no negative surprises on the pension and gratuity
fronts, as it says it has fully provided for foreseeable liabilities. IDBI
claims its CASA/branch and loans/employee ratios are INR460m and
INR115m, respectively, compared to PSU banks’ averages of INR250m-
300m and INR45m-50m.
Valuation
IDBI Bank currently trades at 0.85x FY12 ABV for FY12 ROE of 16%,
based on Bloomberg consensuses estimates.

Buy IDBI Bank – Improvement on track ;target price of Rs181 :: RBS,

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In FY11, IDBI Bank improved its ROA by 20bp to 73bp due to better asset yields and lower
cost of funds. Going forward, slower loan growth and its focus on low cost deposits will likely
improve ROA to 0.9% in FY12F. Valuations seem attractive and we maintain our Buy rating
on the stock.

IDBI BANK: Q4FY11 RESULT HIGHLIGHTS: Sunidhi

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IDBI Bank exceeded both our as well as consensus expectations by reporting a PAT of ` 5162.5 million, up 62% yoy during Q4FY11. The merger of IDBI Home Finance and IDBI Gilts however added ` 250 million to the bottom-line, excluding which PAT would have come in at ` 4912.5 million. The higher than expected PAT was due to lower than expected provisioning as the bank’s asset quality improved on a sequential basis.
Key Highlights NII expands 46% yoy: The NII increased by a robust 46% yoy despite a muted 14% yoy growth in advances. This was due to a 53 bps yoy improvement in the reported NIM to 2.1%. On a sequential basis however, NII contracted by 8% as the NIM deteriorated by 18 bps on the back of a 31 bps increase in the cost of funds coupled with higher priority sector lending.

Buy IDBI Bank; Profitability leads to improving returns…Target :Rs 165:: ICICI Sec

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IDBI  Bank, Profitability leads to improving returns…
Consolidation continued with advances growing at 14% YoY (17% QoQ)
to | 157098 crore and deposits rising only 8% YoY (20% QoQ) to |
180486 crore. Profitability improved in FY11 with NII jumping 92% YoY,
margins maintained over 2% and fee income rising 23% YoY leading to
PAT surging 60% YoY to | 1650 crore. IDBI reported Q4FY11 profit of |
516 crore (up 62% YoY) which was ahead of Street and our estimate (|
447 crore). Even though NII declined sequentially in Q4FY11, 51% QoQ
spurt in fee based income and lower provisioning pushed up profits.
Sequential asset quality improvement and a 583 bps spike in CASA
remained the highlight of the quarter. As per the management guidance
of below industry growth, we expect calibrated business growth of 17%
YoY to lead to PAT growth of 21% YoY in FY12E.

Buy IDBI Bank -Consolidation: profitability at cost of growth? ICICI Securities

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IDBI Bank -Consolidation: profitability at cost of growth? 
Muted business growth of 12% YoY (flat QoQ), sluggish CASA
mobilisation, high NIM at 2.28%, lower employee costs, higher credit
costs due to GNPA rising 22% QOQ (provision for NPA at | 490 crore) and
deferred tax credit of | 278 crore all led to higher than expected profit of |
454 crore (58% YoY jump) for IDBI Bank in Q3FY11. Deposits de-grew 3%
QoQ (inched up 5% YoY) to  | 1,50,239 crore, advances rose 21% (3%
QoQ) to | 134491 crore leading to NII rising 68% YoY (3% QoQ) to | 1204
crore and NIM being maintained high QoQ at 2.28%. The bank is
consolidating with the aim of increasing its CASA, which is currently flat
QoQ at 15% to 18% by March and 20% by FY12E. Moreover, since it plans
to reduce its current bulk deposit share (at ~ 65%), it aims to slow down
the loan book growth to 10% for FY11E (focusing on infrastructure sector
disbursements and priority sector lending). We expect consolidation in
FY12E leading to 12% CAGR in the business mix over FY10-12E.