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Research
Indian Bank - Q4FY12 Result Update - Centrum
Posted On : 2012-05-15 21:51:34( TIMEZONE : IST )
Slippages spike but in the price
INBK's Q4FY12 performance was disappointing on all major parameters with 1) NIMs contracting by 40bps QoQ 2) provisions jumping by 140% QoQ as GNPA spiked 55% QoQ and 3) restructured assets going up 60% QoQ. We maintain Buy on the stock led by inexpensive valuations (0.7x FY14E), strong capital (tier-1 ratio of 11%) and healthy NIMs (~3.2% levels) which should act as a cushion against potential rise in slippages/restructuring.
- Material deterioration in asset quality matrices: Poor asset quality trendwas the key highlight of bank's Q4FY12 performance as GNPA increased by 55% QoQ to 2% which in turn led to ~140% QoQ spike in provisioning costs. The shocking rise in GNPA is primarily due to higher slippages in the corporate portfolio, though the management believes that it is more a result of strict audit exercise and hence recoveries are likely to be strong. Meanwhile, restructured loans jumped by 60% QoQ to 10% of loans led primarily by SEB & aviation exposures with some more restructuring in the pipeline (another 1.25% of loans) driven by infrastructure exposure.
- NIM contracts QoQ: Reported NIMs of 3.16% reflects a contraction of ~40bps QoQ led by reversal of interest income (Rs1500mn) due to restructuring and slippages. The loan book grew by 20.4% YoY led by the large corporate segment (25% YoY) while the management seems to be turning cautious on the SME segment. The management's guidance of 3.4% NIM for FY13 seems a tad optimistic in our view and we factor in ~15bps contraction.
- Tax provision reversal boosts bottomline: In line with the trend in previous quarter, the bank reversed certain tax provisions (Rs1500mn) as they were no longer required. Consequently, the effective tax rate for FY2012 stands at 23% vs +30% for the last three years. The management has guided for an effective tax rate of ~25% for FY13 keeping in mind the benefits arising from aggressiveprovisioning and better tax planning.
- Strong capital position: The timing of potential capital raising plans (through an FPO, duly approved) remains uncertain given unfavorable market conditions. Even without raising capital, the capital adequacy is comfortable at 13.5 % (Tier I: 11.1 %) if the current year profit is considered. Moreover, the bank has headroom to raise Tier II capital to meet Basel III requirements.
- Attractively priced: We have tweaked our earnings estimates to factor in incremental trends and additional information. While the dramatic deterioration in asset quality matrices does undo the effort of the bank post migration to CBS based NPL recognition (in Q1FY11), the current valuation (0.8x FY14E ABVPS) adequately prices in the stress on the book. At current market price, the stock trades at 2.3x FY2014E EPS and 0.7x FY2014E ABVPS. Our estimates imply a fair value estimate of Rs270, an upside of 52% from current level. We maintain Buy recommendation.
