UCO Bank - 1QFY2013 Result Update - Angel Broking

For 1QFY2013, Uco Bank reported a 23.9% yoy growth in its net profit to Rs.362cr, despite strong growth of 29.0% yoy on the NII front, due to a sharp decline in the treasury income and increased provisioning.

NIMs decline qoq; Asset quality deteriorates sequentially: During 1QFY2013, the bank registered a healthy growth of 24.0% and 21.5%, yoy in its advances and deposits respectively. Despite a moderate growth of 9.3% yoy in savings deposits, the overall CASA deposits growth remained healthy at 17.2% yoy, aided by a strong growth of 48.1% yoy in current deposits. The management attributed the strong growth in current deposits to the substantial float being made available on opening of rupee account with the bank for facilitating Indo-Iran trade payments (covering 45% of oil imports from Iran and Indian exports). The CASA ratio came in at 23.3%. The reported overall NIMs for the bank declined by 27bp qoq to 2.4%. The bank's non-interest income (excluding treasury) increased by 15.5% yoy. On the asset quality front, gross and net NPA ratios increased sequentially by 40bp and 27bp respectively. Slippages remained elevated on an absolute basis at Rs.862cr, of which a chunky advance of ~Rs.500cr was contributed by a single group from the bio-chemical industry. The management guided for upgradation of the same in the second quarter. The annualized slippage ratio came in at 3.0% (~1.3% excluding the chunky advance) compared to 3.4% in 4QFY2012. The bank's PCR dipped sequentially by 167bp to 52.7% and remains one of the lowest in the industry. The bank restructured advances worth ~Rs.3,800cr during the quarter, of which ~Rs.2,800cr were on account of restructuring of Air India and two discoms, in-line with management's earlier guidance. The management expects further restructuring of advances worth ~Rs.1,000cr to discoms in the second quarter.

Outlook and valuation: Going forward, we expect the bank's earnings to find support from higher exposure to the SME and retail segments, improvement in other income and moderate asset quality pressures aided by increased recoveries. However, at the current market price, the stock is trading at 0.7x FY2013E ABV, which we believe factors in the improvement expected in earnings. Also, a lower provisioning coverage ratio (higher provisioning burden as the bank moves to 70%) and low core tier-I capital (slower credit growth to accord with Basel-3 norms) are a further overhang. Hence, we maintain our Neutral recommendation on the stock.

Source : Equity Bulls

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