Recommendations » India

Syndicate Bank 2QFY2013 performance highlights and results update

Contributed by Angel Broking

During 2QFY2013, Syndicate Bank reported a moderate operating performance, with a 5.4% yoy decline in its operating profits to Rs.843cr. However tax write-back of Rs.100cr as against tax expense of Rs.61 cr in 2QFY2012 aided the company to post an earnings growth of 43.5% yoy to Rs.463cr.

Business growth moderates; NIM improves; Slippages elevated, but were offset by higher recoveries/upgrades: During 2QFY2013, the business growth for the bank remained moderate, with advances and deposits growing by 12.7% and 10.5% yoy, respectively. Despite a growth of 1 0.9% yoy witnessed in savings deposits, the growth in CASA deposits remained moderate at 8.1% yoy due to flattish current deposits. The CASA ratio improved on a sequential basis by 173bp to 29.9%. Sequentially, an 8bp decline in the cost of deposits coupled with a 10bp higher yield on advances, led to an improvement in the reported NIM by 14bp to 3.3%. On the asset quality front, the bank witnessed stability with a marginal sequential increase of 3.3% qoq in gross NPAs and decline of 1.7% qoq in net NPAs, on an absolute basis. Though the slippages for the bank have remained elevated at Rs.2,108cr during 1HFY2013 with an annualized slippage ratio of 3.4%, the bank has maintained its asset quality due to higher recoveries and upgrades (Rs.1,366cr in 1HFY2013 compared to Rs.1,052 in 2HFY2012) and higher write-offs (Rs.746cr compared to Rs.47cr in 2HFY2012). The provisioning coverage ratio for the bank improved 155bp sequentially and stood comfortable at 82.7%. During the quarter, the bank also restructured loans worth ~Rs.1,100cr, which included an account from the hospitality industry amounting to ~Rs.700cr, thereby taking its outstanding restructured book to Rs.9,200cr (~7.3% of its overall loan book).

Outlook and valuation: Syndicate Bank has a moderate CASA and fee income franchise, with the CASA ratio in the vicinity of 30% as of 2QFY2013 and fee income at 0.6% of average assets as of FY2012. Though the bank has relatively comfortable asset quality outlook than peers and was one of our top picks since the last few quarters, the stock has surged significantly in the recent times and is currently trading at 0.7x FY2014E ABV, which we believe have priced in the risk-reward appropriately. Hence, we recommend a Neutral rating on the stock.