Banking & financial results preview for Q1FY13: P Lilladher

Prabhudas Lilladher Q1FY13 Result Preview for Banking & Financial Services sector:

Q1FY13 will be a relatively strong operating quarter for financials with ~22%/ 21% y/y PPOP and net profit growth. Strong YoY NII growth of 23% is aided by a weak base in margins and sequentially, we expect 5-10bps of margin contraction. Despite the macro weakness, asset quality trends (excl. SBI) are expected to remain robust though we are hearing of initial cracks in retail credit (largely CVs). For PSU banks, we expect mixed trends, with PNB/BOI expected to surprise and SBI disappoint v/s initial guidance. We maintain our preference for Axis/ICICI among large banks and also like HDFC/LICHF in the NBFC space as we see limited asset quality/regulatory risks.

Asset quality robust but may not hold up in FY13

Feedback from large PSUs (excl. SBI) indicate net NPA accretion will be <1% in Q1FY13. Though the wave of restructuring is behind us, given the macro weakness, extrapolating Q1FY13 to FY13 will be optimistic. CV rentals and feedback from some retail banks indicate signs of some stress in the CV portfolio. Though we do not expect any P&L impact in Q1FY13, management commentary on retail credit will be keenly watched. We expect ICICI/Axis to maintain their strong asset quality trend including low restructuring.

Growth and Margins

CRR cuts will net off some impact of high rates and seasonality in margins, but net-net we expect ~5-10bps of margin contraction. ICICI is expected to show robust NIM trends (PLe: 2.85%) and LICHF is expected to report a reversal in spreads (~10bps improvement). Sequential loan growth will remain muted (seasonality); but rupee depreciation (9% QoQ) will aid reported growth.

Key Q1FY13 results

SBI: Factoring in Rs35bn of net slippages in Q1FY13 in line with increase in management guidance and any further increase reported will be taken negatively, given premium valuations to peers.

ICICI Bank: Margins performance expected to remain strong (PLe: 2.85%) but expect fee income recovery only from Q2FY13. Asset quality is robust and we factor in ~75bps of credit costs.

LICHF: Expect 25% Loan growth + reversal in NIM trends for LICHF from Q1FY13.

Retail private banks: Though we expect no negative asset quality surprises, management commentary on retail asset quality will be closely watched.