Syndicate Bank - 1QFY2013 Result Update - Angel Broking

Syndicate Bank posted a net profit growth of 28.4% yoy to Rs.440cr during 1QFY2013, aided by tax write back of Rs.112cr as against tax expense of Rs.73cr in 1QFY2012. At the PBT level, the earnings for the bank declined by 21.1% yoy to Rs.328cr, due to 57.0% yoy increase in provisioning expenses.

Slippages remain high during 1QFY2013: During the quarter, the business growth for the bank remained reasonably healthy. The advances grew by 16.8% yoy, while growth in deposits was strong at 18.4% yoy (higher than system average). The CASA deposits grew 7.1% yoy aided by a moderate growth of 8.8% yoy (flat sequentially) in savings deposits. The current account deposits growth, however, was muted at 1.5% yoy (down 17.7% qoq). Consequently, CASA ratio of the bank declined by 125bp qoq and 297bp yoy to 28.1%. The cost of deposits was higher by 16bp qoq, partly because of a decline in the CASA ratio, while yields on advances were lower by 28bp (interest reversals on account of high slippages during the quarter), leading to reported NIMs declining by 41bp qoq to 3.2%. The bank's slippages remained higher during the quarter at Rs.1,058cr (annualised slippage ratio of 3.4%), however higher write-offs (Rs.360cr compared to average of Rs.466cr in 2HFY2012) and recoveries/upgrades (Rs.858cr compared to average of Rs.526cr in 2HFY2012) during the quarter led to gross NPA levels declining by 3.3% sequentially. The provisioning coverage ratio of the bank improved 65bp sequentially and stood comfortable at 80.7% (on the higher end within the PSU segment). The bank restructured ~Rs.2,000cr of loans during the quarter taking the outstanding restructured advances to Rs.8,302cr (~6.4% of the overall loan book).

Outlook and valuation: We expect Syndicate Bank to deliver a RoE of 17.9% and 19.0% in FY2013 and FY2014 respectively on the back of its relatively better assetquality outlook than peers and moderate NIM. The bank has a modest CASA franchise with a CASA ratio of 28.1% (as of 1QFY2013), while the fee income is also modest at 0.6% of average assets (as of FY2012). However, that said, the bank's relatively cheaper valuations (0.6x FY2014E ABV) and lower asset-quality concerns turn the tide in the stock's favor. We value the stock at 0.7x FY2014E ABV and recommend Buy on the stock with a target price of Rs.119.

Source : Equity Bulls

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