Indian Bank - 4QFY2012 Result Update - Angel Broking

Indian Bank reported a dismal performance for 4QFY2012, both on the operational and asset quality front. The bank's net profit declined by 21.3% yoy (34.3% qoq) to Rs.345cr, despite being aided by tax write back of Rs.110cr, on the back of almost 3.5 times higher provisioning, higher operating expenses and muted growth in operating income. We recommend Accumulate on the stock.

NIM declines sequentially; Asset quality deteriorates: During 4QFY2012, advances for the bank grew at a healthy pace of 20.0% yoy, mainly aided by strong growth in the corporate and commercial and agri segments. On the liability side, growth in deposits was rather moderate at 14.2% yoy. CASA deposits grew at a relatively slow pace of 13.0% yoy, on the back of 8.7% yoy growth in current account deposits despite decent 14.0% yoy growth in savings accounts deposits, which led to a 33bp yoy fall in CASA ratio to 30.5% (up by 33bp sequentially). The bank's yield on advances declined by 76bp qoq due to interest reversal of Rs.151cr, while cost of deposits also declined by 8bp qoq, leading to a 42bp sequential fall in reported NIM to 3.2%. Growth in fee income for the bank was strong at 31.9% yoy to Rs.234cr. Recoveries from written-off accounts were sluggish, declining by 48.3% yoy to Rs.46cr. The bank's asset quality deteriorated sequentially during 4QFY2012, with both gross and net NPAs increasing considerably on a qoq basis. Annualized slippage ratio increased on a sequential basis to 5.5% in 4QFY2012 as against comfortable 1.6% witnessed in 3QFY2012, with major sectoral contributions from infra, glass, textile, gem and gold trade, auto and engineering and real estate. PCR (incl. technical write offs) dipped by 637bp to 70.1%. Additionally, the bank's restructured book increased by ~Rs.3,330cr to Rs.8,902cr during the quarter, mainly on account of restructuring of loans worth ~Rs.800cr to Air India and ~Rs.1,200cr to the power sector. Going ahead, the bank is expected to restructure ~Rs.1,157cr worth of advances in 1QFY2013, of which ~50% would be Rajasthan discoms.

Outlook and valuation: The stock currently trades at 0.7x FY2014E ABV, below its five-year trading range (0.8x-1.3x) and median of 1.0x. Due to cheap valuations, we have an Accumulate rating on the stock with a target price of Rs.197. However, in our view, upsides are likely to be lower than peers, as we remain circumspect on the bank's high RoAs.

Source : Equity Bulls

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