>IDBI BANK: has strategic stakes in NSE, CARE and several other unlisted entities in the financial services space

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.


Balance sheet consolidation
In line with its objective of capital conservation IDBI Bank reported muted balance sheet growth. Loan book was reported at Rs 1,562.17bn up 0.2%QoQ. Moderation in growth was witnessed with a 16.2%YoY growth as against 19.7% in the September 2011 quarter. Deposit growth was reported at Rs 1,771.23bn up 17.9%YoY and 1.5%QoQ. The credit-deposit ratio was reported at 88.2%. IDBI Bank improved its deposit franchisee, despite intense competition from new age private sector banks. CASA deposits were up 54.1% YoY and 4.1% QoQ; CASA composition improved to 19.2% vs. 15.1% in December 2010. Investment book growth was muted at 2.1%YoY and 7.9%YoY. IDBI Bank reported a balance sheet size of Rs 2,558.89bn a 2.2%QoQ growth.


Spreads under pressure as yields lag cost of funds
Sharp rise in cost of funds by ~150bps (YoY) to 8.6% hampered spreads as yields failed to keep pace. Yields inched up ~70bps (YoY) to 10.1%. Spreads dropped about ~80bps (YoY) to 1.7%, amongst the lowest in a series of several quarters. Tight liquidity conditions since May 2011 has seen the banks spreads decline, as the bank relies on bulk deposits. With the bank absorbed a portion of the rise in cost of funds net interest margins were down ~60bps (YoY) at 2.4%. Net interest income was down 12%YoY at Rs 10.6bn.




To read the full report: IDBI BANK
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