Neutral on IDBI Bank - Motilal Oswal

IDBI Bank (IDBI IN; Mkt Cap USD3.4b, CMP Rs152, Neutral)

IDBI Bank's 3QFY11 PAT grew 58% YoY and 6% QoQ, driven by higher NII growth and lower opex (up 2% YoY, but down 19% QoQ). However, pressure on asset quality persists.

In absolute terms, GNPA increased by 22% QoQ to Rs30b. In percentage terms, GNPA increased 34bp QoQ to 2.2%. NNPA remained stable QoQ in percentage terms, as the bank accelerated provisions during the quarter. PCR including technical write-offs improved 100bp to ~76%.

Loan growth moderated to 21% YoY and 3% QoQ (v/s 34% in FY10). Deposits were up 5% YoY but declined 3% QoQ (YTD, deposits are down 10%).NIM for 3QFY11 was stable QoQ at 2.28% (but improved 102bp YoY) on the back of increase in base rate (50bp) and BPLR (75bp).

Restructuring of balance sheet and slower growth augurs well for IDBI Bank. However, sustained stress on asset quality is a key risk. We expect the bank to report NII CAGR of 38% and PAT CAGR of 28% over FY10-13. We expect RoA to improve to 0.7% and RoE to 14-15% by FY13. IDBI Bank has some strategic investments, which we value at Rs28/share; adjusted for this, the stock is trading at 0.9x FY12E BV. Maintain Neutral.

Source : Equity Bulls

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