Earnings Update - Lakshmi Vilas Bank (LVB IN) - Treasury gain drives growth in operating profit - CSEC Research

- LVB's advances grew marginally (8.5%YoY) to INR197bn. Sequentially, the loan book de-grew by -2.7% due to the slowdown on account of demonetization and higher repayments. Management revised its growth outlook for FY17 at ~10% from a previous guidance of ~16% on account of witnessing weak credit demand. The growth going forward would largely be driven by Retail and SME.

- Deposits grew (15.9%YoY, 4%QoQ) to INR 277.5bn in 3QFY17 supported by growth of CASA by 49.8%YoY due to the impact of demonetization. The current CASA ratio stands at 21.4% as against 17.3% at 2QFY17. Credit to Deposit ratio currently stands at 71% as against 75.9% in the last quarter.

- NIM declined to 2.72% (-6bps YoY) led by decline in Credit-deposit ratio and interest reversals. Cost of funds dropped by 68bpsYoY to 6.7% whereas Yield on funds fell further by 84bps YoY to 9.07%. Net Interest Income grew by 14% YoY at INR 1.9bn in 3QFY17.

- Asset quality declined marginally with GNPA increasing by 8bps QoQ to 2.78% on account of lower base of advances. NNPA improved by 5bps QoQ to 1.82%. Fresh slippages in 3QFY17 moderated at INR 877mn vs. INR 1.73bn in 2QFY17 with cash recoveries and upgradations for the quarter at INR 852mn.

Valuation: Barring the current quarter due to the impact of demonetization, the bank has been showing a stable growth in its loan book along with maintaining asset quality and margins at healthy level which gives a positive outlook for the bank. The stock is currently trading at 1.1X FY19E P/BV and 7.3X P/E FY19E. We maintain our MARKETPERFORMER rating and target price of INR 140, implying a FY19E P/BV of 1.1X.

Risks: Weakness on the asset quality from the SME division, lower than expected recoveries in the corporate book and sustained high operating cost.

Shares of LAKSHMI VILAS BANK LTD. was last trading in BSE at Rs.140.4 as compared to the previous close of Rs. 138.55. The total number of shares traded during the day was 276897 in over 1619 trades.

The stock hit an intraday high of Rs. 141.05 and intraday low of 137.8. The net turnover during the day was Rs. 38605562.

Source : Equity Bulls

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