Syndicate Bank - Dolat Capital

Followings are key observations in Syndicate Bank's financial performance:

- Improvement in liability profile: In FY12, Syndicate Bank recorded substantial improvement on deposit profile; whole-sale deposits & CDs proportion declined by 470bps to 21% from 26% a year back and core retail deposits increased by almost 430bps to 69%

- Prudent & measured credit book expansion : In FY12, the bank grew its credit book slower than the industry at 15.8% compared to 17.5% of the industry with taking higher amount collaterals. On maturity profile front, the bank's credit portfolio average maturity remained almost same with 33% of credit book in less than 1 year maturity buckets. The bank reduced its concentration risk of credit portfolio & exposure reflecting into lesser concentration in top twenty loan accounts and borrowers

- Rating of credit book: Syndicate Bank's proportion of unrated credit book slightly increased to 53% from 51% a year back and share of unrated credit book (with more 100% risk weight) remained almost constant at 5.9%

- Margin and assets' risk weights: On margin front, the bank managed to maintain margin even in a difficult scenario mainly on the back of stability on low-cost deposits share with decrease in bulk deposit proportion on liability side and marginal increase in exposure to riskier assets. Also, higher proportion of investments diverted towards longer tenure papers aiding yield on the book. The bank's RWAs/assets ratio increased to 53.6% from 51% a year back aiding asset yield. The bank's margin improved by 4bps to 3.06%

- Revamp of core fee Income: Non-fund revenue stream was robust with strong core fee income at Rs. 5.5bn. The incumbent CMD believes that there is a scope to further strengthen fee income with existing infrastructure

- Asset quality under control: In detailed classification of GNPA, proportion of sub-standard loans went up sharply to 61% from 44% in FY11. On the fresh restructuring 1front, the bank added Rs. 31.5bn. Major areas of loan restructuring were agriculture, MSME, CRE and large industries. Out of total loan restructured, Rs. 11bn came from Air India account alone

- Steady expansion in foot-prints: The bank added 214 branches in FY12 compared to 186 in FY11 and even in lackluster scenario during FY12, the bank maintained its pace in customer base expansion which aided core deposits mobilisation

Overall, we maintain our positive stance on the stock and estimate that the bank would report RoAA of ~0.8% and RoAE of 16-18% in FY13-14. We reiterate our stock rating to Buy with a price target of Rs. 152. At current price, it quotes at 0.7x and 0.6x ABV FY13 and FY14 respectively; based on our target price, the stock would trade at 0.9x adjusted book value FY14. The stock is available at an attractive dividend yield of 4.6% (on FY13's dividend).

Source : Equity Bulls

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