Angel Broking recommends Neutral on Syndicate Bank - 3QFY2014 Result Update

During 3QFY2014, Syndicate Bank reported asset quality stability, even as operating performance came in subdued. Annualized slippage ratio came in at 1.9% (much lower than average of 4.2% for last two quarters), which aided it to keep its Gross NPA levels flat qoq. At the pre-provisioning profit level, the bank reported a 6.8% yoy decline, as NII came much lower than estimates registering 2.9% yoy decline (despite loan book growth of 16.9% yoy). Provisioning expenses declined 13.4% yoy and aided PBT level earnings growth of 3.7% yoy. However, lower tax reversals (at Rs. 33cr in 3QFY2014 vs. Rs. 174cr in 3QFY2013) resulted in a PAT de-growth of 25.3% yoy.

NIMs decline qoq; Sequentially lower slippages keep asset quality stable: During 3QFY2014, the bank witnessed a healthy growth in its business, as advances grew by 16.9% yoy, while growth in deposits came in at 18.9% yoy. CASA deposits grew at moderate pace of 8.3% yoy, thereby leading to 263bp yoy decline in CASA ratio to 26.8%. During the quarter, the bank's cost of deposits increased 15bp qoq to 6.7% on back of lower CASA share. Reported NIMs for the bank declined 13bp qoq to 2.8%. Non-interest income (excluding treasury) for the bank grew at a moderate pace of 13.2% yoy to Rs. 265cr, dragged by flat fee income performance. The bank witnessed asset quality stability during the quarter, as slippages came in lower at Rs. 701cr (annualized slippage ratio of 1.9%) as compared to average quarterly run rate of around Rs. 1,162cr for the last four quarters. The Management expects recoveries to catch up in 4QFY2014. Due to lower slippages, the Gross NPA levels, on an absolute basis, remained flat qoq. On a relative basis, the Gross NPA ratios decreased by 8bp to 2.8%, while net NPA remained flat at 1.7% qoq. During the quarter, the bank restructured advances worth ~Rs. 506cr (as compared to Rs. 265cr in 2QFY2014), thereby taking its outstanding restructured book to Rs. 10,151cr. As per the Management, the restructuring pipeline for the bank would be in the range of Rs. 400-500cr in the next few quarters (contributed by 4-5 large accounts).

Outlook and valuation: Syndicate bank has a modest CASA and fee income franchise (Calculated CASA ratio at 26.8% as of 3QFY2014 and fee income at 0.5% of average assets as of FY2013), however its diversified loan book provides relatively better asset quality outlook as compared to similar peers. RoAs/RoEs for the bank, after being aided by negative/minimal tax expenses in FY2013/9MFY2014, are expected to reach 0.5%/11.7% for FY2015E, relatively lower than peers available at similar valuations of 0.4x FY2015E ABV. Hence, we maintain our Neutral rating on the stock.

Source : Equity Bulls

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