Professional Documents
Culture Documents
August 3, 2011
IDBI Bank
Performance Highlights
NEUTRAL
CMP Target Price
% chg (qoq) 4.0 (11.7) (35.1) 1QFY11 851 831 251 % chg (yoy) 35.4 24.0 33.6
`125 -
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code
For 1QFY2012, IDBI Bank reported healthy 33.6% yoy growth in its net profit to `335cr, which was in-line with our estimates but lower than consensus forecasts. Sequentially stable NIM, lower fee income and higher slippages despite the already-functioning system-based NPA recognition platform were the key highlights of the result. We maintain our Neutral view on the stock. NIM surprises positively while slippages rise: For 1QFY2012, the banks advances declined by 1.3% qoq (up 14.5% yoy). Deposits also declined by 2.3% qoq (up 12.1% yoy). Advances growth on a yoy basis was driven by strong 49.8% growth in retail credit, which has increased its share to 19.2% from 14.7% in 1QFY2011. CASA deposits growth continued to be healthy at 49.2% yoy, leading to a 429bp yoy improvement in CASA ratio to 17.3%. The bank was able to largely sustain (down marginally by 3bp qoq) its reported NIM at 2.1%, despite the 54bp qoq rise in cost of funds. The annualised gross slippage ratio increased to 1.6% as compared to 0.5% in 4QFY2011. Slippages were on the higher side considering the fact that the bank had already switched over to system-based NPA recognition platform. Profitability in 1QFY2012 was aided by the write-back of provisions on SRs of `92cr. However, profits were lower due to the higher effective tax rate at 44.6% (27.6% in FY2011) due to non-tax deductibility of certain provisioning expenses. Profits for the quarter included ~`18cr from the two subsidiaries, which had merged with the bank in 4QFY2011. Branch expansion was healthy with addition of 67 branches, taking the network to 883. 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 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 1.1x FY2013E P/ABV adjusting for SASF (0.8x without adjusting). However, in our view, there are near-term cyclical headwinds to margins and asset quality. Hence, we maintain our Neutral stance on the stock. Key financials
Y/E March (` cr) NII % chg Net Profit % chg NIM (%) EPS (`) P/E (x) P/ABV (x) # RoA (%) RoE (%) FY2010 2,267 82.9 1,031 20.1 1.2 14.2 8.8 1.2 0.5 13.2 FY2011 4,329 90.9 1,648 59.9 1.8 16.7 7.4 1.0 0.7 15.8 FY2012E 4,856 12.2 1,714 4.0 1.9 17.4 7.2 0.9 0.6 12.9 FY2013E 5,753 18.5 2,103 22.7 1.9 21.4 5.8 0.8 0.7 14.3
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 65.1 15.6 3.9 15.4
3m (3.2) (8.7)
Vaibhav Agrawal
022 3935 7800 Ext: 6808 vaibhav.agrawal@angelbroking.com
Shrinivas Bhutda
022 3935 7800 Ext: 6845 shrinivas.bhutda@angelbroking.com
Varun Varma
022 3935 7800 Ext: 6847 varun.varma@angelbroking.com
1QFY12 4QFY11 % chg (qoq) 1QFY11 % chg (yoy) 5,629 4,300 1,282 6 42 4,476 1,152 431 408 268 23 39 101 1,583 553 244 309 1,031 426 360 55 11 605 270 335 44.6 5,025 3,722 1,287 5 11 3,917 1,109 676 628 462 48 73 93 1,784 617 305 313 1,167 282 131 144 7 885 369 516 41.7 12.0 15.5 (0.4) 11.3 277.1 14.3 4.0 (36.2) (35.0) (42.0) (52.1) (46.6) 9.0 (11.3) (10.5) (19.9) (1.4) (11.7) 51.0 174.8 (61.8) 55.1 (31.6) (26.8) (35.1) 296bp 4,289 3,153 1,135 1 1 3,438 851 466 455 320 11 30 105 1,317 486 234 253 831 502 315 155 32 329 79 251 23.8 31.2 36.4 13.0 669.9 4,652.3 30.2 35.4 (7.6) (10.4) (16.3) 109.1 30.0 (4.1) 20.2 13.6 4.5 22.1 24.0 (15.2) 14.3 (64.5) (66.3) 83.7 243.9 33.6 2,079bp
Actual 1,130 505 1,635 670 966 486 480 144 336
Estimates 1,152 431 1,583 553 1,031 426 605 270 335
Variation (%) 2.0 (14.7) (3.2) (17.5) 6.8 (12.3) 26.1 87.5 (0.3)
August 3, 2011
1QFY12 4QFY11 %chg (qoq) 1QFY11 154,984 157,098 176,282 180,486 87.9 16,838 13,639 30,477 17.3 13.8 8.0 9.8 10.0 7.3 2.1 34.9 3,288 2.1 1,933 1.3 74.0 1.6 0.6 87.0 23,742 13,936 37,678 20.9 13.6 7.5 9.8 10.1 6.7 2.1 34.6 2,785 1.8 1,678 1.1 74.7 0.5 0.2 (1.3) 135,329 (2.3) 157,204 88bp (29.1) (2.1) (19.1) (359)bp 19bp 54bp 1bp (2)bp 52bp (3)bp 30bp 18.1 34bp 15.2 19bp (68)bp 104bp 35bp 86.1 10,124 10,305 20,429 13.0 11.9 6.6 8.4 8.7 6.1 1.6 36.9 2,640 1.9 1,606 1.2 73.6 1.9 0.5
%chg (yoy) 14.5 12.1 183bp 66.3 32.4 49.2 429bp 197bp 135bp 140bp 134bp 112bp 46bp (201)bp 24.5 16bp 20.4 6bp 34bp (35)bp 2bp
Business growth moderates; CASA deposits growth remains healthy at 49.2% yoy
For 1QFY2012, the banks net advances declined by 1.3% qoq (up 14.5% yoy). Deposits also declined by 2.3% qoq (up 12.1% yoy). Advances growth on a yoy basis was driven by strong 49.8% growth in retail credit. Share of retail credit in loan book increased to 19.2% in 1QFY2012 from 14.7% in 1QFY2011. The major constituent of the loan book corporate advances, which form over two-thirds of the loan book, grew at a moderate pace of 6.9% yoy. Overall deposits growth was rather moderate at 12.1% yoy. However, CASA deposits growth continued to be healthy at 49.2% yoy, driven by a 66.3% yoy rise in current account deposits and 32.4% yoy growth in saving account deposits. Consequently, CASA ratio improved by 429bp yoy to 17.3%. IDBI Bank had recently (September 2010) waived off all transaction and service-related charges on all current and saving bank accounts to attain higher growth in CASA deposits. As a result, the bank has increased the number of saving accounts by 45.0% (to ~47lakh accounts) over the past one year. However, the bank is yet to witness meaningful accretion in these accounts. Also, the rising spread in saving account interest rates and FD interest rates has resulted in
August 3, 2011
moderation in CASA deposits accretion for almost all banks. Accordingly, management has revised its guidance of 25% CASA ratio by FY2012-end to 1718%.
13.0
15.3
15.0
20.9
(2.1) (6.2)
(3.8) (1.8)
(2.6)
(1.3) (2.3)
(10.0)
60.0
17.3
3.3
16.8 20.1
5.0
15.0 -
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
August 3, 2011
% chg (qoq) 1QFY11 (42.0) (52.1) (28.1) (46.6) 66.7 (36.2) (35.0) 320 11 43 30 68 472 461
Slippages rise
During 1QFY2012, overall asset quality deteriorated with gross NPAs increasing by 18.1% qoq and net NPAs rising by 15.2% qoq. The annualised gross slippage ratio increased to 1.6% as compared to 0.5% in 4QFY2011 and 1.4% in FY2011. Slippages came primarily from the SME segment and management expects the stress from this sector to continue over the next 12 quarters. Slippages were on the higher side, considering the fact that the bank had already switched over to system-based NPA recognition platform. The bank also restructured advances of `402cr during the quarter, which primarily constituted advances to the infrastructure sector. Gross NPA ratio increased to 2.1% from 1.8% in 4QFY2011, while net NPA ratio increased to 1.3% from 1.1% in 4QFY2011. The provision-to-coverage ratio including technical write-offs was stable sequentially at 74.0%.
0.2
1.9 1.2
1.9 1.2
2.2 1.2
1.8 1.1
2.1 1.3
60.0
0.5
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722
759
766
816
400
883
August 3, 2011
Investment arguments
Strong branch expansion and relatively healthy fee income
IDBI Bank enjoys the advantage of a modern, 100% CBS branch network, which is growing organically at a much faster rate than other PSU banks (1718% CAGR post the FY2007 UWB acquisition). While the present 883 branches are predominantly urban-concentrated (66.5%), the bank intends to increase its presence in semi-urban areas going forward. Management has indicated its plans to take the branch network to 1,0001,050 branches by the end of FY2012 and maintain an 1820% CAGR in branch network. We believe this would continue to increase the contribution of retail deposits in the banks funding mix and drive strong CASA market share gains. The banks CASA deposits grew at a 36.0% CAGR over FY200711, and we have factored in a 28.0% CAGR over FY2011-13E. On account of the increasing retail expansion of the bank, we have also accordingly factored in a relatively high 25.6% CAGR in opex for the bank. Relative to other PSU banks, on account of the banks strong corporate relationships and government mandates, the banks fee income at 0.8% is also healthy (though going forward, in light of the banks recent move to waive off charges for retail depositors to attract CASA deposits as well as slower balance sheet growth and consistent with the managements guidance, we have factored in a moderate 10.2% CAGR in fee income over FY201113E).
enjoying
structural
tailwinds,
but
cyclical
Historically, IDBI Bank has witnessed the lowest NIM in the industry, majorly on account of high cost of funding due to the liability mix heavily skewed towards bulk deposits. Also, since the bank relied heavily on corporate lending to increase its loan book, yields on assets on an average have been lower than peers. In wake of lower NIMs, the bank has indicated a strategy of lower advances growth (~15% for FY2012) than the system to concentrate on the increasing the percentage of low-cost CASA deposits and consciously shifting focus from large corporate lending to retail and MSME lending to bring in higher-yielding loans. However, in the near term, the bank may find it hard to fully translate these improvements at the NIM level due to the substantial increase in interest rates. At the same time, the bank is expected to fare better than other smaller banks with similarly low CASA ratios on account of the incrementally higher momentum in retail assets and liabilities. Hence, in balance, we have factored in range-bound NIMs going forward. Also, in-line with the banks guidance of potential chunky NPAs from the banks legacy corporate loan book (although to a much lesser quantum than that in the past), we have also not built in material improvement in credit costs for the bank.
August 3, 2011
Investment concern
SASF A burden on the banks books
Due to the erstwhile DFI structure being challenged with a number of asset-quality issues, IDBI Bank at the time of the merger had to set up a stressed asset stabilisation fund (SASF) to quarantine defaulted assets. The transfer value of the SASF was ~`9,000cr, through which the bank has witnessed only ~`3,500cr worth cash recoveries (as of FY2011). The possibility of an entire recovery seems implausible and would lead to full provisioning expenses towards the amount that remains unrecoverable. The SASF with an outstanding value of ~`5,500cr also remains a burden on the banks investment books due to its special nature of zero interest securities. Accordingly, we have adjusted 75% of the value of the SASF against the banks net worth to arrive at ABV estimates for valuing the bank. At the same time, the bank has material stakes in several financial institutions, including NSE, CARE, NSDL and ARCIL, apart from subsidiaries such as IDBI Federal Life and the market value of all these investments is estimated to be about `2,000cr more than the banks investment cost (about `15 per share, post 25% holding company discount). Monetisation of these investments could help partially compensate the decline in the banks net worth on account of the legacy NPAs, providing an upside to our estimates.
August 3, 2011
Earlier estimates FY2012 13.0 14.0 23.4 1.9 12.9 26.4 26.4 1.5 0.2 FY2013 14.0 14.0 26.3 2.0 14.0 26.4 26.4 1.5 0.2
Revised estimates FY2012 13.0 14.0 23.4 1.9 4.1 24.8 24.8 1.5 0.2 FY2013 14.0 14.0 26.3 1.9 16.0 26.4 26.4 1.5 0.1
FY2013 Earlier estimates 5,794 2,680 8,474 3,602 4,872 1,682 3,190 1,035 2,155 Revised Var. (%) estimates 5,753 2,513 8,266 3,555 4,711 1,597 3,114 1,010 2,103 (0.7) (6.2) (2.5) (1.3) (3.3) (5.0) (2.4) (2.4) (2.4)
Earlier estimates 4,894 2,350 7,244 2,850 4,394 1,798 2,596 779 1,817
Revised Var. (%) estimates 4,856 2,167 7,023 2,813 4,210 1,761 2,449 735 1,714 (0.8) (7.8) (3.0) (1.3) (4.2) (2.1) (5.6) (5.6) (5.6)
0.4x
0.7x
1x
1.3x
1.6x
Source: Company, Angel Research; Note: #Without adjusting the book value for SASF
August 3, 2011
Reco. Buy Buy Accumulate Buy Buy Accumulate Neutral Neutral Buy Buy Buy Buy Neutral Buy Neutral Neutral Buy Buy Neutral Accumulate Accumulate Buy Buy Neutral Buy Buy Neutral
CMP (`) 1,308 406 482 1,002 23 307 197 134 875 373 54 427 110 488 84 125 217 133 883 338 1,093 2,279 117 81 278 90 62
Tgt. price (`) 1,648 483 519 1,324 26 353 1,018 434 65 516 608 255 155 383 1,217 2,845 139 327 107 -
Upside (%) 26.0 19.0 7.7 32.2 15.1 14.8 16.4 16.2 19.6 20.8 24.5 17.4 16.3 13.2 11.4 24.9 19.0 17.7 18.7 -
FY2013E P/ABV (x) 2.1 1.1 3.3 1.8 1.2 2.0 0.9 0.9 1.2 1.0 0.7 0.8 0.8 0.8 0.6 0.8 0.9 0.8 0.9 0.8 1.3 1.7 0.8 0.9 1.0 0.8 0.8
FY2013E Tgt. P/ABV (x) 2.7 1.3 3.5 2.4 1.4 2.3 1.4 1.2 0.9 1.0 1.0 1.0 1.0 0.9 1.4 2.1 0.9 1.2 0.9 -
FY2013E P/E (x) 10.8 8.2 16.8 14.2 7.0 10.3 5.5 6.0 6.6 5.8 5.1 4.9 5.3 4.5 4.0 5.8 4.6 5.1 5.9 5.7 6.8 8.4 4.9 4.7 5.9 6.0 6.7
FY2011-13E EPS CAGR (%) 20.9 20.2 30.5 25.8 11.6 19.1 9.2 (0.6) 10.8 18.7 30.8 (2.4) (14.0) 6.1 7.0 13.0 10.4 22.4 8.8 7.5 7.4 44.2 14.6 16.5 20.0 6.1 61.9
FY2013E RoA (%) 1.5 1.3 1.7 1.5 0.9 1.2 0.9 0.9 1.1 0.8 0.6 0.9 0.5 0.9 0.8 0.7 1.4 0.7 1.2 0.9 1.0 1.1 0.7 0.6 0.8 0.5 0.4
FY2013E RoE (%) 21.0 14.1 20.9 16.0 17.2 20.6 17.8 15.9 19.6 18.0 14.8 17.2 14.4 17.9 16.5 14.3 20.4 16.4 17.0 14.4 20.0 22.6 17.0 17.1 17.9 12.5 11.7
IndBk
Source: Company, Angel Research; Note:*Target multiples=SOTP Target Price/ABV (including subsidiaries), #Without adjusting for SASF
August 3, 2011
10
Income statement
Y/E March (` cr)
NII - YoY Growth (%) Other Income - YoY Growth (%) Operating Income - YoY Growth (%) Operating Expenses - YoY Growth (%) Pre - Provision Profit - YoY Growth (%) Prov. & Cont. - YoY Growth (%) Profit Before Tax - YoY Growth (%) Prov. for Taxation - as a % of PBT PAT - YoY Growth (%)
FY08 676 2.8 1,731 65.4 2,408 41.2 945 21.3 1,463 58.0 641 162.7 822 20.5 93 11.3 729 15.7
FY09 1,239 83.2 1,562 (9.8) 2,802 16.4 1,338 41.6 1,464 0.0 478 (25.3) 985 19.8 127 12.9 859 17.7
FY10 2,267 82.9 2,342 49.9 4,609 64.5 1,831 36.9 2,778 89.8 1,733 262.4 1,045 6.0 14 1.3 1,031 20.1
FY11 4,329 90.9 2,081 (11.1) 6,410 39.1 2,255 23.1 4,155 49.6 1,877 8.3 2,278 118.1 630 27.6 1,648 59.9
FY12E 4,856 12.2 2,167 4.1 7,023 9.6 2,813 24.8 4,210 1.3 1,761 (6.2) 2,449 7.5 735 30.0 1,714 4.0
FY13E 5,753 18.5 2,513 16.0 8,266 17.7 3,555 26.4 4,711 11.9 1,597 (9.3) 3,114 27.1 1,010 32.4 2,103 22.7
Balance sheet
Y/E March (` cr) Share Capital Reserves & Surplus Deposits - Growth (%) Borrowings Tier 2 Capital Other Liab & Prov. Total Liabilities Cash balances Bank balances Investments Advances - Growth (%) Fixed Assets Other Assets Total Assets - Growth (%) FY08 725 8,097 68.4 36,482 7,341 5,051 6,695 2,064 32,803 31.6 2,766 4,154 25.9 FY09 725 8,699 54.0 35,532 8,885 6,160 8,592 2,628 50,048 25.8 2,824 4,867 31.9 FY10 725 9,440 49.2 35,010 12,699 8,031 13,903 679 73,345 33.6 2,997 4,445 35.5 FY11 985 13,583 180,486 7.6 36,608 14,962 6,753 253,377 19,559 1,207 68,269 157,098 13.7 3,037 4,206 253,377 8.5 FY12E 985 14,903 205,754 14.0 39,869 16,907 7,422 285,840 13,374 7,078 79,798 177,521 13.0 3,324 4,745 285,840 12.8 FY13E 985 16,499 234,559 14.0 44,482 19,274 8,931 324,730 15,246 8,042 90,015 202,374 14.0 3,663 5,391 324,730 13.6
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11
Ratio analysis
Y/E March Profitability ratios (%) NIMs Cost to Income Ratio RoA RoE B/S ratios (%) CASA Ratio Credit/Deposit Ratio CAR - Tier I Asset Quality (%) Gross NPAs Net NPAs Slippages Loan Loss Prov./Avg. Assets Provision Coverage Per Share Data (`) EPS ABVPS# DPS Valuation Ratios PER (x) P/ABVPS (x)# Dividend Yield DuPont Analysis (%) NII (-) Prov. Exp. Adj. NII Treasury Int. Sens. Inc. Other Inc. Op. Inc. Opex PBT Taxes RoA Leverage (x) RoE
Note:
#
FY08 0.6 39.2 0.6 11.2 16.6 112.6 12.0 7.4 1.9 1.3 1.5 0.1 30.8 10.1 84.3 2.0 12.4 1.5 1.6 0.6 0.5 0.0 1.0 1.0 0.5 1.5 0.8 0.7 0.1 0.6 18.0 11.2
FY09 0.9 47.8 0.6 12.1 14.8 92.0 11.3 6.6 1.4 0.9 0.8 0.1 33.9 11.8 94.6 2.5 10.6 1.3 2.0 0.8 0.3 0.5 0.3 0.8 0.8 1.5 0.9 0.7 0.1 0.6 21.3 12.1
FY10 1.2 39.7 0.5 13.2 14.6 82.4 11.0 6.1 1.5 1.0 1.4 0.1 70.0 14.2 101.4 3.0 8.8 1.2 2.4 1.1 0.9 0.3 0.4 0.6 0.8 1.4 0.9 0.5 0.0 0.5 25.9 13.2
FY11 1.8 35.2 0.7 15.8 20.9 87.0 12.6 7.3 1.8 1.1 1.4 0.5 74.7 16.7 128.0 3.5 7.5 1.0 2.8 1.8 0.8 1.0 0.0 1.1 0.8 1.9 0.9 0.9 0.3 0.7 23.3 15.8
FY12E 1.9 40.0 0.6 12.9 23.4 86.3 12.5 6.9 2.5 1.2 1.5 0.5 75.0 17.4 141.7 3.5 7.2 0.9 2.8 1.8 0.7 1.1 0.0 1.2 0.8 2.0 1.0 0.9 0.3 0.6 20.3 12.9
FY13E 1.9 43.0 0.7 14.3 26.3 86.3 12.4 6.7 3.1 1.2 1.5 0.4 75.0 21.4 157.9 4.5 5.9 0.8 3.6 1.9 0.5 1.4 0.0 1.4 0.8 2.2 1.2 1.0 0.3 0.7 20.7 14.3
August 3, 2011
12
E-mail: research@angelbroking.com
Website: www.angelbroking.com
DISCLAIMER
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.
Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered
IDBI Bank No No No No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
Ratings (Returns):
August 3, 2011
13