Bank of Maharashtra - Result Update 1QFY2014 - Angel Broking

Bank of Maharashtra reported a strong operating performance for 1QFY2014, with a NII growth of 39.5% yoy (largely aided by robust advance growth of 44.5% yoy) and earnings growth of 89.6% yoy. The bank witnessed pressures on asset quality front, as Gross NPA levels increased sequentially by 31.8% (albeit on a lower base), however Net NPA levels witnessed much higher increase of 66.9% qoq, as PCR dipped 718bp qoq to 76.5%.

Strong business growth continues; NIM declines on lower CASA ratio: During 1QFY2014, the bank continued to witness strong growth in its business, as advances grew by 44.5% yoy (8.9% qoq), while deposits by 32.0% yoy (11.8% qoq). Strong advance growth was driven by robust traction witnessed in SME and Agricultural advances, which grew by 41.4% and 37.5% yoy respectively. Overall, CASA deposits for the bank grew by 17.8% yoy (de-grew by 3.2% qoq), much less than the strong growth in aggregate deposits, hence CASA ratio for the bank dipped 426bp yoy and 546bp qoq to 35.3%. Reported NIM for the bank declined 8bp sequentially to 3.0%, on back of 546bp sequential slide in the CASA ratio, even as yield on advances increased marginally by 4bp qoq to 11.3%. The bank's non-interest income (excluding treasury) grew at a moderate pace of 8.1% yoy to Rs. 167cr, on back of flat performance on recoveries front and moderate growth of 11.8% yoy in its fee income. Treasury income came in at Rs. 58cr as against Rs. 24cr in 1QFY2013, thus enabling overall other income to grow by 25.9% yoy to Rs. 225cr. During 1QFY2014, the bank witnessed pressures on the asset quality front, as gross and net NPA levels increased by 31.8% and 66.9% sequentially (albeit on a low base). Annualized slippage ratio for the bank during the quarter came in at 3.0% as against 2.2% in 4QFY2013 and 3.1% in 1QFY2013. Recoveries and upgrades came in much lower at Rs. 106cr as against Rs. 307cr in 4QFY2013 and Rs. 156cr in 1QFY2013. The bank's PCR dipped 718bp qoq to 76.5%, though remains on the higher side within the PSU pack.

Outlook and valuation: Total CAR for the bank as per Basel III stood at 10.76%, however core equity tier-I remains low, raising concerns about book value dilution in near future. Moreover, we remain wary of the asset quality pressures for the bank, as we take into account its recent aggressive loan growth, overall weak macro environment and recent macro developments. Hence, we recommend a Neutral rating on the stock.

Source : Equity Bulls

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