Thursday, April 26, 2012

>IDBI Bank: Sustainability of performance remains in question

IDBI Bank reported a PAT of Rs 7708 mn up 49% yoy and 88% qoq. Bottom-line stood well above expectations due to an improvement in asset quality and a spurt in fee based income. Additionally the bottom-line of the bank was aided by a lower tax rate as the bank took advantage of tax deductions under Sec 36 (1) (viii). However going ahead, fee based income and CASA are expected to come off and sustainability of asset quality remains questionable
NIM remains stable sequentially

IDBI Bank reported a NIM of 1.9% for Q4FY12, which was in line with that of the previous quarter. The yield on advances came off by 37 bps qoq due to continued focus on priority sector lending which has lower yields. However the fall in the yield on advances was compensated by lower cost of funds during the quarter. The cost of funds came off by 49 bps qoq as the CASA ratio improved sequentially. In FY13 the NIM is expected to fall in a range of 1-9%-2.1%.

Advances growth spurts sequentially due to higher PSL lending
Advances grew by 16% qoq and 15.3% yoy. The spurt in sequential lending was on account of higher bought outs as the bank prepares to meet priority sector lending targets by FY13.
Higher fee based income due to closure of assignments boosts other income Non-interest increased by 80% qoq as certain loan syndication and project appraisal assignments achieved closure in Q4FY12 which led to a 94% qoq increase in fee based income. Fee based income is likely to come off in Q1FY13.

Asset quality improves sequentially, slippages come off
Slippages for the quarter stood at Rs 3760 mn (slippage rate of 1.0%). Slippages were significantly lower than that of the previous quarter. Due to lower slippages and strong reductions, absolute GNPAs came off by 1.9% qoq and NNPAs came off by 4.8% qoq. On a relative basis asset quality improvement was stronger due to the high sequential growth in the advances book.

Restructured assets at 5.5% of total advances
The banks restructured book increased by 5.4% qoq to Rs 100373 mn as the bank restructured loans of around Rs 14980 mn during the quarter. Of this amount, Rs 7630 mn was due to restructuring of Air India.

Revise price target to Rs 117 from Rs 120 earlier
IDBI Bank has reported a strong set of numbers for Q4FY12 on the back of a spurt in fee based income, strong CASA growth and an improvement in the asset quality. However going ahead, fee based income and CASA are expected to come off and sustainability of asset quality remains questionable. As a result we maintain our Hold recommendation on the stock with a revised price target of Rs 117. At the CMP of Rs 105, the bank trades at 0.8x its FY13E ABV and 0.7x its FY14E ABV.