Syndicate Bank - Lower Provisions and Tax reversal props Profits - Karvy

In Q3FY13, Syndicate Bank's performance came better than our expectations with PAT growing at 50.4% YoY (up 9.7% QoQ) to Rs5.1 bn, owing to higher than expected tax write back and lesser than expected credit costs. NII grew 6% YoY (up 1% QoQ) and NIM declined 4 bps QoQ at 3.29% due to decline in yield on advances. Asset quality improved during the quarter owing to lesser slippages. However, balance sheet growth continues to remain moderate.

- Moderate loan Growth: Advances grew at 17.3% YoY (up 6.2% QoQ) and Deposits grew 14.6% YoY (up 5.3% QoQ). Consequently, C-D ratio increased 70 bps to 82.1%. The management has guided 15-16% credit growth for FY13.

- Asset Quality promising: Syndicate Bank's asset quality showed further improvement during the quarter, as net incremental slippages declined by Rs 186 mn and fresh slippage ratio declined to 2.7% from 3.3% in H1FY13. Gross NPA ratio declined by 16 bps to 2.31% and net NPA ratio reduced by 7 bps to 0.85%. The provision coverage ratio is maintained at 83%. The bank restructured loans worth Rs1 bn and the cumulative restructured loan book stood at Rs 100 bn (7.4% of loan book).

- Contraction in NIMs: NIMs declined 4bps sequentially to 3.29% as yield on advances declined 31 bps sequentially to 9.17%. This was partially offset by decline in cost of deposits by 30 bps to 6.7%. We expect NIM to remain around 3.25% in FY13.

Outlook & Valuation

At the CMP the stock is trading at 4.0x and 3.8x FY13E and FY14E EPS, and at 0.8x and 0.7x FY14E and FY15E P/ABV respectively. We have maintained our estimates and our price target at Rs175 valuing the stock at 0.9x FY15 and maintain BUY rating on the stock.

Source : Equity Bulls

Keywords