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IDBI Bank 3QFY2012 performance highlights and results update

Contributed by Angel Broking

For 3QFY2012, IDBI Bank reported a weak set of numbers, below our estimates on account of higher margin compression and higher-than-estimated provisioning. We recommend a Neutral rating on the stock.

Margins under pressure; Asset quality continues to deteriorate: The bank’s advances grew by 16.2% yoy, while deposits increased by 17.9% yoy. CASA deposits growth continued to be healthy at 54.1% yoy (4.1% qoq), leading to a 462bp yoy improvement in CASA ratio to 19.7%. However, on a sequential basis, saving account deposits declined by 7.2% qoq due to shift to higher-yielding term deposits. The bank’s NIM remained under pressure during 3QFY2012 on account of high proportion of bulk deposits (~44% of overall book) and shift to higheryielding term deposits from saving account deposits, which led to higher cost of funds (up 24bp qoq) for the quarter. Also, most of the incremental lending during 3QFY2012 was towards meeting the priority sector’s lending targets, which led to yield on advances remaining flat sequentially. The bank’s fee income declined by 2.6% yoy to Rs.432cr. On a sequential basis, fee income declined by a sharper 11.4% qoq, as the bank witnessed negative growth in all fee segments except income from forex (up a healthy 58.3% qoq). Total slippages during 3QFY2012 increased to Rs.1,234cr (average of Rs.607cr over the past four quarters), as the bank classified an aviation account as NPA during the quarter (total exposure of Rs.696cr). The bank restructured ~Rs.1,389cr worth of accounts during 3QFY2012, taking the total outstanding restructured book to Rs.9,522cr. Major restructuring during 3QFY2012 was on account of a telecom account, on which the bank also took an NPV hit of 13.5% of the exposure in the P&L.

Outlook and valuation: The bank has been among the fastest-growing banks in terms of CASA deposits over the past few years (CAGR of 36% over FY2007-11) even when compared to private banks and now has a market share of 2.1% (as of FY2011). At the CMP, the bank is trading at valuations of 1.0x FY2013E P/ABV, adjusting for the SASF amount (0.7x without adjusting). In our view, the bank is one of the PSU banks to watch out for, especially once near-term asset-quality headwinds subside. However, we feel current valuations, post the recent run-up in the stock price, factor in the positives. Hence, we recommend a Neutral rating on the stock.