Indian Bank - 4QFY2013 Result Update - Angel Broking

For 4QFY2013, Indian Bank reported a subdued performance, both on operating as well as on the asset quality front. Surge in employee expenses (more than double on a yoy basis, on account of higher provisioning for pension and other employee benefits), resulted in 69.4% yoy increase in operating expenses and 29.2% yoy decline in pre-provisioning profits. However, aided by higher tax write-backs (of Rs. 203cr during the quarter, as against a tax write-back of Rs. 110cr in 4QFY2012) the decline in earnings was capped at 15.4%.

NIMs lower qoq; Asset quality pressures continue: During 4QFY2013, the bank's advances grew at a healthy pace of 17.0% yoy (up 6.8% qoq). Within advances, growth in the agriculture and retail book was robust at 27.3% and 17.9% respectively, while the corporate book grew moderate by 10.1% yoy. Growth in deposits also came in healthy at 17.5% yoy (5.1% qoq), while the low-cost CASA franchise grew at a modest pace of 6.2% yoy (2.3% qoq) and hence, the CASA ratio for the bank dipped by 295bp yoy (76bp qoq) to 27.6%. Reported NIMs for the bank declined by 19bp qoq to 2.9%, on back of 52bp decline in yield on advances to 10.6%. The bank's non-interest income (excl treasury) grew at a healthy pace of 19.4% yoy to Rs. 334cr. Growth in fee income was moderate at 12.8% yoy, while recoveries from written off accounts grew strongly by 53.3% yoy to Rs. 71cr. The bank continued to witness asset quality pressures during the quarter, as slippages remained elevated at ~Rs. 1,300cr (annualized slippage ratio of 5.8%) as against ~Rs. 1,400cr in 3QFY2013. Better recoveries/upgrades during the quarter(at Rs. 751cr compared to Rs. 190cr in 3QFY2013), amidst elevated slippages, aided the bank to contain the sequential increase in Gross and Net NPA levels to 12.1% and 11.3% respectively. While the gross NPA ratio increased by 15bp sequentially to 3.3%, the increase in the net NPA ratio was 9bp to 2.3%. The bank's PCR remained stable at 60.1%. During the quarter, the bank restructured advances worth Rs. 1,200cr, thereby taking its restructured book (stated borrower wise, after upgrading satisfactorily performing accounts) to Rs. 9,704cr. Going ahead, the restructuring pipeline for the bank under CDR stands at Rs. 1,100cr

Outlook and valuation: The stock currently trades at 0.6x FY2015E ABV, below its eight-year trading range (0.8x-1.3x) and median of 1.0x. Although, we remain cautious on the bank's asset quality, recent underperformance of the stock, in our view, over-discounts the asset quality concerns. Hence, we recommend a Buy rating on the stock, with a target price of Rs. 186.

Source : Equity Bulls

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