Indian Bank - 1QFY2013 Result Update - Angel Broking

Indian Bank reported earnings growth of 13.5% yoy during 1QFY2013. Earnings growth came in higher despite moderate 7.6% yoy growth in pre provisioning profits, as improvement in asset quality led to decline in provisioning expenses by 17.7% on a yoy basis.

NIMs improve sequentially; Asset quality reverts back: During 1QFY2013, advances for the bank grew at a moderate pace of 13.8% yoy, mainly aided by strong growth in the agri segments and the overseas book. Despite 12.5% yoy growth witnessed in savings deposits, growth in the low-cost CASA franchise moderated to 8.8% yoy, due to 6.4% yoy decline in current deposits in-line with sectoral trends. The bank's yield on advances improved by 39bp qoq to 11.3% (lower in 4QFY2012 due to impact of interest reversal of Rs.151cr), while cost of deposits was also higher by 23bp qoq to 7.0%, leading to a 14bp sequential improvement in reported NIM to 3.3%. Non-interest income (excluding treasury) remained almost flat on a yoy basis to Rs.200cr. Recoveries from written-off accounts were strong at Rs.32cr compared to Rs.19cr in 1QFY2012. Key highlight was that the bank's asset quality improved substantially on a sequential basis during 1QFY2013 (after a very poor performance in 4QFY2012), with both gross and net NPAs levels declining on a sequential basis. Annualized slippage ratio came in at 1.0%, substantially lower from 5.5% registered in 4QFY2012. The banks' PCR improved sequentially by 495bp and stood at comfortable 75.1%. During the quarter, the bank's restructured ~Rs.1,507cr worth of advances taking its outstanding restructured book to ~Rs.9,918cr. Growth in restructured book was mainly contributed by restructuring of ~Rs.1,067cr worth of loans to Rajasthan discoms. The bank expects further ~Rs.500cr worth of restructuring to be in pipeline.

Outlook and valuation: The stock currently trades at 0.7x FY2014E ABV, below its eight-year trading range (0.8x-1.3x) and median of 1.0x. However, in our view, upsides are likely to be lower than peers as we remain circumspect on the bank's high RoAs and remain cautious on its asset quality. Hence, we recommend a Neutral rating on the stock.

Source : Equity Bulls

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