Sunday, April 24, 2011

IDBI Bank - RU4QFY2011 - Neutral

Result Update on IDBI Bank for 4QFY2011 with a Neutral recommendation.


For 4QFY2011, IDBI Bank posted robust net profit growth of 62.1% yoy (54% after adjusting for the merger) to `516cr. Improvement in asset quality and strong growth in non-interest income, driven by 58.2% qoq growth in fee income and 231.8% qoq growth in recovery from written-off accounts, were the key highlights of the result. We recommend a Neutral rating on the stock.


Strong advances growth; NIMs sustain above 2%:  For 4QFY2011, the bank's net advances grew by robust 16.8% qoq to `1,57,098cr, while total deposits grew by 20.1% qoq to `1,80,485cr, driven by 115.4% growth in current account deposits. Savings accounts grew by 20.3% qoq and 58.6% yoy to`13,936cr in 4QFY2011. Due to the year-end surge in current account deposits, CASA ratio jumped from 15.1% in 3QFY2011 to 20.9% as of 4QFY2011. NII declined by 7.9% qoq due to the increase in cost of liabilities by 33bp to 6.73%. Consequently, reported NIM dropped from 2.28% in 3QFY2011 to 2.10% in 4QFY2011. During 4QFY2011, overall asset quality improved considerably with slippages coming down to `187cr compared to slippages of ~`694cr in 3QFY2011. Annualised slippage ratio for the quarter fell to 0.5% in 4QFY2011 compared to 2.1% in 3QFY2011.


Outlook and valuation: IDBI Bank's discount to bigger PSU banks is quite low despite considerably lower RoEs, largely due to the prospect of diminishing performance gap vis-à-vis peers. We believe IDBI Bank is set to improve its credit and deposit mix going forward. However, at the CMP, the bank is trading at 1.3x FY2013E P/ABV adjusting for SASF (0.9x P/ABV without adjusting), which we believe is relatively expensive in light of cyclical headwinds. Hence, we recommend Neutral on the stock.

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