Maintain BUY on Syndicate Bank - Stable Earning, Better Asset Quality - Karvy

Syndicate Bank is currently trading at five year average valuation, while the stock has outperformed the Bankex by 30% over last one year reflecting stable earning and better asset quality.

Moderate Growth in Business: We believe that Syndicate Bank would continue its strategy of growing its loan book marginally below the industry. Growth in large corporate is expected to remain weak for Syndicate Bank, whereas segments like Retail, MSME and Agriculture would drive the growth. We expect Syndicate Bank's deposit growth to match growth in credit, while CASA ratio to remain stable at ~30%, going forward.

NIMs to Remain Healthy: Despite difficult conditions, Syndicate Bank has been able to maintain its NIMs of >3.2% in H1FY13. Though the Bank expects cost of deposits to decline marginally, this is likely to get offset by decline in yield on advances.

Stable Asset Quality: Syndicate Bank's asset quality continues to remain better than most of the PSU banks. The Bank's asset quality has seen relatively lesser deterioration as compared to its peers. Large part of the containment in slippages is on account of cautious lending approach over past three years, which has protected the Bank from asset quality worries and declining margin. Its restructured loan book stood at 7.3% of advances. The Bank's asset quality is likely to remain stable in FY13, with healthy provision coverage ratio of 82%.

Outlook & Valuation

At the CMP, the stock trades at 4.4x & 4.1x FY14E & FY15E earnings, and at 0.9x & 0.7x P/ABV FY14E & FY15E, respectively. Based on its historical mean valuation implying 0.9x P/ABV FY14E, we reiterate our "BUY" recommendation on Syndicate Bank with upwardly revised target price of Rs. 175 per share (from Rs. 150 earlier).

Source : Equity Bulls

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