New York: 21:52 || London: 02:52 || Mumbai: 06:22 || Singapore: 08:52

Recommendations India

IDBI Bank 3QFY2014 performance highlights and results update

February 10, 2014, Monday, 06:38 GMT | 01:38 EST | 11:08 IST | 13:38 SGT
Contributed by Angel Broking


IDBI Bank reported a weak operating performance for 3QFY2014, with earnings de-growth of 75.1% yoy. Key highlights from the result were a) moderate NII growth at 5.3% yoy (on back of subdued loan growth of 4.4% yoy), b) sequentially stable margins at 2.2%, c) weak non-interest income performance, with a degrowth of 26.1% yoy, dragged by 32.3% yoy de-growth in CEB income, d) pace of asset quality deterioration slowed (as slippages came in lower sequentially), however as per the Management, such asset quality performance is unsustainable in the near term, given the challenging macro environment.
 
Business growth remains moderate; NIMs stable qoq: During the quarter, the bank’s business continued to grow at a moderate pace, with loan book growth of 4.4% yoy and deposits growth of 3.9% yoy. Savings deposits grew by 19.1% yoy, while volatile current deposits declined 15.5% yoy. CASA deposits remained largely flat yoy, leading to a 51bp yoy decline in CASA ratio to 21.8%. Reported margins for the bank remained sequentially stable at 2.18%. The bank reported a weak performance on the non-interest income (excl. treasury) front, with a decline of 26.1% yoy, dragged by 32.3% yoy de-growth in the CEB income. The bank reported a treasury gain of Rs.43cr during the quarter as against Rs.208cr in 3QFY2013 (which included gain on divestment of stake in CARE Ratings). The asset quality pressures for the bank moderated during 3QFY2014, as slippages came in at Rs.855cr compared to Rs.2,149cr in 2QFY2014. While absolute Gross NPA levels increased 6.9% qoq, the net NPA levels remained largely flat sequentially, as the PCR (incl. technical write-offs) improved ~100bp qoq to 63.6%. The bank also restructured advances worth ~Rs.1,300cr (as compared to ~Rs.550cr in 2QFY2014). Two chunky accounts from EPC and metals contributed more than Rs.700cr of the incremental restructuring during the quarter. The Management has indicated that the slippages performance during the quarter is unsustainable in the near future, implying higher slippages in the next one-two quarters. CDR restructuring pipeline for the bank stands at ~Rs.1,000-1,200cr, mostly contributed by few chunky accounts from the Metals and EPC sector.
 
Outlook and valuation: Though the asset quality pressures have moderated for the bank during 3QFY2014 (with sequentially much lower slippages), such performance is unsustainable in the near term as per the Management, given the challenging macro environment. At CMP, the bank is trading at a valuation of 0.4x FY2015E P/ABV, (0.5x adjusting for the SASF). We maintain our Neutral rating on the stock.