>IDBI BANK (ICICI DIRECT)

Business growth in line, provisioning high...
IDBI Bank reported a 58% YoY jump in NII to Rs 760 crore, which was in line with our estimates. It witnessed higher operating expenditure for the quarter and also maintained higher-than-expected provisions, which led to 60% YoY and 62% QoQ decline in PBT to Rs 151 crore. The bank exercised deferred tax credit of Rs 167 crore leading to PAT of Rs 318 crore in line with our estimate of Rs 310 crore.

NIM to improve to 1.6%
The NIM of 1.6% for Q4FY10 was flat YoY. For the full year, the NIM improved by 29 bps to 1.3%. The bank currently has 720 branches and plans to add another 300 branches in FY11E. This will enable it to improve its CASA ratio from the current 14.6% to 16% by FY12E. Above industry credit growth and a rising interest rate should improve the NIM to 1.6%.

Asset quality improves sequentially
The GNPA improved from Rs 2317 crore in Q3FY10 to Rs 2129 crore for Q4FY10 (1.5% of loan book). Higher provision coverage ratio of 75% led to improvement in NNPA from Rs 1554 crore in Q3FY10 to Rs 1406 crore (1% of loan book). We expect GNPA@1.8% and NNPA@1.1% for FY12E.

Capital infusion awaited
The CAR of the bank currently stands at 11.3% (Tier I- 6.2%), which is below the required limit of 12% (Tier I- 8%). The bank has applied to GoI for capital infusion that will enable the bank to grow its balance sheet over 20% CAGR in the coming five years (approximates about Rs 10,000
crore). But we believe government can’t give such a huge amount and may give about Rs. 5000 crore on singular basis and if full Rs.10000 cr is to be raised, IDBI will have to come to market. Hence, we have currently factored in 10% dilution in FY11E as government funds.

Valuation
We believe due to lower-than-industry NIMs at 1%, RoE of14%-16% & RoA at 0.5%, the stock cannot trade more than book. We value IDBI at 0.9x FY12E ABV and ascribe Rs 25 to its investment book, to get fair price of Rs 141.

To read the full report: IDBI BANK