Syndicate Bank - 4QFY2012 Result Update - Angel Broking

Syndicate Bank reported a 22.0% yoy decline in its profit before tax (PBT) to Rs.248cr, despite healthy 17.6% growth in pre-provisioning profit on the back of higher provisioning expenses, partly because the bank was one of the few PSU banks which increased provision coverage sequentially. However, net profit grew by moderate 7.0% yoy on the back of negative tax expense of Rs.61cr during the quarter as against tax expense of Rs.30cr in 3QFY2012. We recommend a Buy rating on the stock.

Business growth remains moderate; slippages surge: During the quarter, business growth remained moderate. Advances grew by 15.8% yoy to Rs.123,620cr, aided by healthy growth of 17.6% and 29.7% yoy in agriculture and weaker section credit, respectively. Growth in deposits was relatively high compared to advances growth at 16.5% yoy, mainly on account of 24.2% growth in term deposits to Rs.108,606cr. CASA deposits grew by 10.7% yoy on account of moderate growth of 9.9% yoy in savings deposits and 12.9% yoy in current deposits. Consequently, CASA ratio dipped by 154bp yoy to 29.4%. Reported NIM improved by 15bp qoq to 3.60%. The bank's asset quality deteriorated sequentially with slippages increasing to Rs.1,059cr, much above the average quarterly run rate of Rs.591cr for the past four quarters. Consequently, gross annualized slippage ratio for the bank increased substantially on a sequential basis to 4.0% during 4QFY2012 as against 1.9% in 3QFY2012. While gross NPAs increased from 2.3% to 2.5%, net NPA ratio increased from 0.9% to 1.0%. The bank increased its provisioning coverage to 80.1% in 4QFY2012 from 78.5% in 3QFY2012. If the bank had not increased its provisioning coverage, PBT would have been higher by Rs.97cr (38.4% yoy). The bank restructured ~Rs.1,700cr of loans during the quarter (majorly Air India's ~Rs.1,000cr), taking its outstanding restructured advances to ~Rs.6,200cr (~4.8% of the overall loan book).

Outlook and valuation: The stock is currently trading at 0.5x FY2014E ABV (its five-year range of 0.6-1.1x and median of 0.8x). Also, valuations appear cheap compared to its peers, which are trading at higher multiples, although they have similar or poorer fundamentals. We value the stock at 0.7x FY2014E ABV and recommend Buy on the stock with a target price of Rs.131.

Source : Equity Bulls

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