>IDBI BANK (SKP SECURITIES)

Capital infusion, fuel for growth:
■ As on 31st March 2010. Tier 1 capital of IDBI Bank was 6.2%, which is lower than the RBIs suggested level of 8%.

■ To increase the Tier 1 capital to 8% GOI is expected to infuse capital of Rs.31000 Mn. by way of preferential placement of equity.

■ This will provide headroom to IDBI bank to raise funds to support its business growth.

Healthy business growth:
■ With the capital infusion, IDBI Bank would be in position to grow its business above the industry average, though achieving the previous high growth rate will not be possible. We believe that Total business for IDBI Bank will grow at the CAGR of 24% from FY09 to FY12E.

■ This growth would be supported by:
1. Branch expansion.
2. Capital infusion.
3. Targeting infrastructure lending.

Increased emphasis on CASA deposits:
■ IDBI Bank has been depending on borrowings to support its lending business. Now bank is emphasizing on deposits to support its lending, leading to decreased cost.

■ The bank has been growing its concentration on mobilizing the CASA deposits as witnessed by the CASA ratio trend which we estimate to increase from 14.78% in 2009 to 17% by 2012E.

Robust profitability:
■ Reshuffling of deposits and skew ness towards low cost deposits will improve margins and on this basis we expect to see growth in NII by 56% and 36% for FY2011E and 2012E respectively.

■ Fee based income is also expected to grow in line with growth in credit, helping to sustain high growth in PAT.

Valuation
At present IDBI Bank is trading at 1.2x Adj. BV of FY10. Our target price of Rs.154 is 1.2x and 1.1x to Adj. BV per share of FY11& FY12 respectively.

We hereby initiate coverage on IDBI Bank and recommend buy rating with a target price of Rs.154/- (24% upside) in 12 months.

To read the full report: IDBI BANK