Vijaya Bank - 2QFY2013 Result Update - Angel Broking

During 2QFY2013, Vijaya Bank posted a dismal performance on the operating front, with a decline of 37.0% yoy in operating profit. At the PBT level, the bank witnessed a de-growth of 56.1%. However, a tax write-back of Rs.16cr during the quarter compared to the tax expense of Rs.40cr in 2QFY2012 limited the net profit decline to 39.4% yoy.

NIMs decline sequentially; Asset quality witnesses pressure: During 2QFY2013, the bank witnessed moderate growth in its business, with both advances and deposits registering a growth of 9.7% and 9.5% yoy, respectively. Within advances, the agri and the SME book registered a healthy growth of 26.1%, and 23.3% yoy, respectively. Savings deposits grew by 6.2% yoy, while current deposits witnessed a decline of 5.3% yoy. Consequently, the overall CASA deposits grew at a subdued pace of 3.2% yoy. CASA ratio declined by 131bp yoy to 21.6%. Cost of deposits went up by 7bp qoq to 8.1%, which fully negated the 4bp improvement in yield on advances to 11.7%, leading to a 4bp sequential fall in the reported NIMs to 2.1%. Despite a healthy growth of 19.0% yoy in recoveries, the bank's non-interest income (excluding treasury) witnessed a subdued growth of 5.9% yoy, on the back of a muted performance on the fee income front (2.4% yoy). On the asset quality front, the bank witnessed pressures, with both gross and net NPA levels, increasing by 12.0% and 14.1% qoq, respectively. Slippages came in at Rs.556cr (annualized slippage ratio of 3.8%) compared to Rs.481cr in 1QFY2013 (annualized slippage ratio of 3.3%). PCR dipped by 232bp qoq to 61.8%. Additionally, the bank restructured advances worth Rs.543cr during 2QFY2013, lower compared to restructuring of Rs.827cr in the last quarter, thereby taking its outstanding restructured book to Rs.4,294cr (~7.3% of its total advances). ~95% of the incremental restructuring during the quarter was done in the infrastructure sector.

Outlook and valuation: Despite the stability witnessed in 1QFY2013, we had been cautious on the bank's asset quality and on expected lines, it has witnessed pressures on that front in 2QFY2013. We believe the asset quality concerns for the bank still persists. Also, the bank's low core equity ratio could lead to further dilution on account of Basel III guidelines. The bank's RoA is likely to remain at subdued levels of ~0.5% even in FY2014. Currently, the stock trades at 0.7x of FY2014E ABV, which is relatively expensive than its peers; hence, we recommend a Neutral rating on the stock.

Source : Equity Bulls

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