Accumulate IDBI Bank;tgt of Rs 117: Arihant capital markets

“The youngest public sector bank, IDBI Bank, recorded whopping 49% annual profitability growth for the fourth quarter FY12 primarily due to boost in gains of Rs 183 crores in deferred tax and lower provisions for bad loans coupled with superior traction in fee income . The sustenance of high profitability is questionable given the tough macros and highly unlikely scenario of such a huge traction in fee income. The opex remained under pressure owing to branch network expansion and provisions towards retirement obligations. The full year (FY12) witnessed decent 23% YoY growth in profits. Margin pressures, muted credit growth, high bulk-deposit base, and asset-liability mismatch remain challenges for the bank. We maintain Accumulate rating on the stock with target price of Rs 117 valuing the bank’s core business at 0.7X P/ABV FY13E.”

“The credit growth for the bank registered below industry level growth of 15% annually and 16% growth sequentially. The priority sector advances and securitized asset pool largely supplemented the loans for the year end quarter, while the core loan growth remained weak owing to the slowdown in corporate loan portfolio. The bank consciously plans to boost the small ticket size retail book at a faster pace than the corporate book. In this regard, we expect the bank to clock not very impressive growth of 16% in total loan book for FY13E.”

“Deposits for the quarter grew by mere 17% Yoy and 19% on QoQ basis. The traditionally wholesale funded bank however, witnessed CASA improvement to 24% for FY12 from 21% previous year primarily on the back of current account deposits. However, build-up of CASA base appears to be challenging in a much competitive environs and hence the bank realigned the deposit rates in line with new market rates by slashing the interest rates between 10 to 50 bps on deposits. We expect the bank to clock weaker deposit growth of 15.5% growth for FY13E. During the quarter, there was a marginal improvement in gross NPA too, at 2.49 per cent, against 2.94 per cent a year ago, but for the full fiscal it rose to 2.49 percent from 1.76 percent. The bank saw a net addition of Rs 500 crore to its restructured assets portfolio during the year, while the credit costs witnessed dramatic improvement,” says Arihant capital market research report. 

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