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Bank of Maharashtra 3QFY2013 performance highlights and results update

Contributed by Angel Broking

Bank of Maharashtra reported a strong performance for 3QFY2013, both on the operating as well as on the asset quality front. While strong advance growth of 48.5% yoy, resulted in operating profit growth of 23.4% yoy, earnings growth came in much higher at 43.2% yoy, further aided by decline in provisioning expenses on a yoy basis (partly due to write-back of investment provisions of Rs.45cr).

Business grew substantially; NIMs declined: During 3QFY2013, the bank reported substantial growth in its business, with advances and deposits growing by 16.0% qoq and 14.7% qoq, respectively. Growth in the loan book was primarily led by higher corporate lending and strong traction witnessed in retail loans. Corporate lending constituted 68.8% of the total incremental lending during the quarter, while lending to the retail segment constituted 19.5%. CASA ratio came off sharply by 350bp qoq to 33.9%. Reported NIM for the bank came off by 10bp qoq to 2.9%, on back of lower CASA ratio. Despite strong growth of 31.4% yoy in fee income to Rs.133cr owing to substantial loan book growth, the bank’s non-interest income (excluding treasury) grew at a moderate pace of 11.7% yoy to Rs.156cr, dragged by lower recoveries. The bank delivered reasonable asset quality performance, with annualized slippage ratio coming in at 1.8%, compared to 2.3% for 1HFY2013. Apart from normalized slippages, the bank also registered inspired performance on the recoveries/upgrades front, resulting in sequentially flat gross NPA levels, on an absolute basis. Net NPA levels were also lower sequentially by 12.9%, on an absolute basis. Gross and Net NPA ratios for the bank declined sequentially by 29bp and 22bp to 1.7% and 0.7%, respectively (partly due to strong loan growth). The bank’s PCR improved by 270bp qoq to 82.8%. As of 3QFY2013, the bank’s CAR stood at 10.7%, with tier I at 6%. Even, out of its total tier-I capital, around Rs.883cr constitutes preference capital and Tier-I Bonds, which would imply a Core Equity Tier-I of hardly around 5%, thereby implying the need to raise substantial equity capital going forward.

Outlook and valuation: At the current market price, the stock is trading at a valuation of 0.7x FY2014E ABV. Given the extremely low CAR, risk of equity-capital raising at substantially book dilutive valuations persists. Additionally, recent aggressive loan growth increases concerns about future asset quality. Hence, we recommend a Neutral rating on the stock.