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Syndicate Bank 3QFY2013 performance highlights and results update

Contributed by Angel Broking

During 3QFY2013, Syndicate Bank reported a moderate operating performance, with a 6.3% and 11.8% yoy decline in its operating profits and profit before tax, respectively. However tax write-back of Rs.174cr as against tax expense of Rs.41cr in 3QFY2012 aided the company to post an earnings growth of 50.4% yoy.

Business growth healthy; NIM stable; Slippages elevated, but were offset by higher recoveries/upgrades: During the quarter, the bank witnessed healthy growth in its business, as advances and deposits grew by 17.3% and 14.6% yoy, respectively. Despite the 11.9% yoy growth witnessed in savings deposits, the growth in CASA deposits remained moderate at 9.9% yoy, due to muted growth of 3.7% yoy in current deposits. CASA ratio for the bank was lower by 39bp qoq to 29.5%. The bank shed around Rs.3,300cr of differential rate deposits during the quarter and hence as of 3QFY2013, share of bulk deposits to total deposits stood reduced to 16.9% from 18% in 2QFY2013. NIMs remained largely stable sequentially at 3.3%. On the asset quality front, the bank witnessed stability, as gross and net NPA levels remained almost flat sequentially, on an absolute basis. Though, slippages for the bank remained elevated at Rs.903cr during 3QFY2013 (annualized slippage ratio of 2.9%), the bank reported stable performance on the asset quality front, due to higher recoveries and upgrades (Rs.727cr in 3QFY2013 compared to Rs.480cr in 2QFY2013 and average of Rs.600cr in past one year). Gross and net NPA ratios came in lower sequentially by 16bp and 7bp, respectively to 2.3% and 0.9%. The bank’s PCR improved by 75bp sequentially and remained on the higher side within the PSU segment at 83%. During the quarter, the bank’s restructuring book grew by ~Rs.600cr (lower than Rs.1,100cr restructured in 2QFY2013), to Rs.9,874cr.

Outlook and valuation: Although, the bank has a moderate CASA and fee income franchise, with the CASA ratio in the vicinity of 30% as of 3QFY2013 and fee income at 0.6% of average assets as of FY2012, it has relatively comfortable asset quality outlook than peers. Moreover, it is currently trading at 0.75x FY2014E ABV, lower than its median one year forward valuation of 0.9x. Hence, we recommend a Buy rating on the stock, with a target price of Rs.157.