Share Market Update on IDBI Bank for 1QFY2012

Share Market Update on IDBI Bank for 1QFY2012 with a Neutral recommendation. 

For 1QFY2012, IDBI Bank reported healthy 33.6% yoy growth in its net profit to `335cr, which was in-line with our estimates but lower than consensus forecasts. Sequentially stable NIM, lower fee income and higher slippages despite the already-functioning system-based NPA recognition platform were the key highlights of the result. We maintain our Neutral view on the stock.

NIM surprises positively while slippages rise: For 1QFY2012, the bank’s advances declined by 1.3% qoq (up 14.5% yoy). Deposits also declined by 2.3% qoq (up 12.1% yoy). Advances growth on a yoy basis was driven by strong 49.8% growth in retail credit, which has increased its share to 19.2% from 14.7% in 1QFY2011. CASA deposits growth continued to be healthy at 49.2% yoy, leading to a 429bp yoy improvement in CASA ratio to 17.3%. The bank was able to largely sustain (down marginally by 3bp qoq) its reported NIM at 2.1%, despite the 54bp qoq rise in cost of funds. The annualised gross slippage ratio increased to 1.6% as compared to 0.5% in 4QFY2011. Slippages were on the higher side considering the fact that the bank had already switched over to system-based NPA recognition platform. Profitability in 1QFY2012 was aided by the write-back of provisions on SRs of `92cr. However, profits were lower due to the higher effective tax rate at 44.6% (27.6% in FY2011) due to non-tax deductibility of certain provisioning expenses. Profits for the quarter included ~`18cr from the two subsidiaries, which had merged with the bank in 4QFY2011. Branch expansion was healthy with addition of 67 branches, taking the network to 883.

Outlook and valuation: We believe the bank is set to improve its credit and deposit mix going forward on the back of its strong branch expansion plans. The bank has been amongst the fastest-growing in terms of CASA deposits over the past few years even when compared to private banks and now has a market share of 2.1%. At the CMP, the stock is trading at 1.1x FY2013E P/ABV adjusting for SASF (0.8x without adjusting). However, in our view, there are near-term cyclical headwinds to margins and asset quality. Hence, we maintain our Neutral stance on the stock

Share Market Update on Federal Bank for 1QFY2012

Share Market Update on Federal Bank for 1QFY2012 with a Buy recommendation and a Target Price of `478 (12 months)

For 1QFY2012, Federal Bank recorded net profit growth of 10.8% yoy (down 14.9% qoq), below our estimates, mostly due to higher provisioning expenses than built in by us. Management has attributed the rise in NPAs (slippages at `323cr) during the quarter to one-off employee-related issues, which led to a spurt in slippages in the retail book. Fee income according to management also suffered due to this one-off event. We recommend a Buy rating on the stock.

CASA ratio improves; however, asset-quality woes continue: For 1QFY2011, advances grew by 0.1% qoq to `31,972cr, while deposits declined by 0.2% qoq to `42,936cr. Although total deposits declined during the quarter, the bank was able to sequentially grow its savings and current account deposits by 3.5% and 4.2%, respectively, leading to a 96bp increase in CASA ratio to 27.2%.  Including NRE deposits, total low-cost deposits constituted 32.8% of total deposits. Cost of deposits increased by 103bp qoq, leading to a 13bp qoq decline in reported NIM to 3.9%. Slippages for 1QFY2012 stood at `343cr (annualised 4.0%), driven by higher slippages on the retail (~`140cr) and SME (~`140cr) front. Management has attributed the increase in slippages on the retail side to one-off employee-related issues that cropped up during the quarter, leading to slackness on the recovery front. During 1QFY2012, non-interest income declined by 17.2% qoq (up 6.4% yoy), mainly due to sluggishness in fee-related initiatives and recoveries on the retail side (recoveries were down by 42.6% qoq), as per management.

Outlook and valuation: Post the recent correction, the stock is trading at 1.1x FY2013E ABV. While lower leverage is leading to low RoE at present, the bank’s core RoA is relatively high and should improve further as asset-quality pressures start moderating. We recommend Buy on the stock with a target price of `478.

Stock Market Update on Crompton Greaves for 1QFY2012

Stock Market Update on Crompton Greaves for 1QFY2012 with a Neutral recommendation.

Crompton Greaves (CG) reported a dismal performance for 1QFY2012; well below our expectations, with a disappointing performance on the profitability front. On a consolidated basis, the company posted modest growth of 5.9% yoy to `2,438cr (`2,302cr), which was broadly in-line with our estimate of `2,486cr. However, a sharp increase in raw-material costs affected the company’s margins considerably, denting CG’s overall profitability during the quarter. We recommend Neutral on the stock

Negative surprise on margins; Unimpressive show by the power segment: Led by high raw-material costs, EBITDA margin for the quarter witnessed a steep decline of 545bp yoy to 7.5%, which was well below our estimate of 12.5%. The margin erosion can mainly be attributed to the power systems segment, which contracted sharply by around 800bp yoy to 2.6%. Weak performance delivered through overseas subsidiaries (flat growth and negative OPM) largely contributed to the dull operating performance on a consolidated front. Consequently, EBITDA declined by 38.8% yoy to `182cr (`297cr). Consequently, PAT also fell sharply by 58.4% yoy to `79cr (`191cr).

Outlook and valuation: The T&D equipment segment is witnessing challenging times, characterised by heightened competition, pricing pressures and delayed tendering from PGCIL. Industry commentary suggests that ordering is likely to pick up post 1HFY2012 on the back of increased activity at PGCIL’s, which should stabilise CG’s power segment. However, a tough macro environment and competitive pressures in the overseas T&D markets (which contribute substantially to CG’s revenue) would weigh heavily in the near-to-medium term. Though we believe CG to be an underperformer, the stock has corrected significantly and further downside seems limited. Hence, we recommend Neutral.

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