Indian Bank - 2QFY2013 Result Update - Angel Broking

During 2QFY2013, Indian Bank reported a poor operating performance, with flattish operating income and a 1.5% yoy decline in the operating profit. However, 8.2% yoy decline in provisioning expenses (on a base of higher investment provisioning in 2QFY2012 and write-back of contingent provision) as well as large Rs.101cr interest on IT refund, aided the bank to report an earnings growth of 5.7% yoy.

NIMs decline sequentially; Slippages higher due to one chunky account: The advances for the bank grew at a moderate pace of 10.8% yoy during 2QFY2013, mainly aided by a strong growth in the agri segments and the overseas book. Despite a 13.5% yoy growth in savings deposits, the growth in the low-cost CASA franchise remained moderate at 9.8% yoy, due to a 5.4% yoy decline in current deposits. The CASA ratio for the bank dipped 35bp sequentially to 29.0%. The reported NIM for the bank declined sequentially by 18bp to 3.3% largely due to a 16bp fall in the yield on advances on interest reversal of Rs.26cr on slipped accounts and full impact of base rate reduction in May 2012. The growth in noninterest income (excluding treasury) for the bank remained muted at 3.7% yoy to Rs.333cr, despite being aided by interest on IT refund amounting to Rs.101cr. On the asset quality front, slippages came in at Rs.734cr (which included one chunky account of Rs.360cr - currently referred to CDR) compared to Rs.232cr in 1QFY2013 and quarterly average of Rs.425cr since 1QFY2011. Annualized slippage ratio came in at 3.3%, much higher than 1.0% witnessed in 1QFY2013 and average run rate of 2.4% since 1QFY2011. On an absolute basis, both gross and net NPA levels increased by 27.4% and 30.8%, respectively. PCR for the bank dipped sequentially by 411bp to 71%. Additionally, the bank restructured ~Rs.675cr worth of advances, thereby taking its outstanding restructured book to Rs.10,349cr as of 2QFY2013. As per the management, no major restructuring is in the pipeline, except for the aforementioned exposure of ~Rs.360cr under CDR.

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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