Accumulate IOB; target of Rs 155: Angel Broking

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Accumulate IOB; target of Rs 155: Angel Broking

Angel Broking is bullish on Indian Overseas Bank (IOB) and has recommended accumulate rating on the stock with a target of Rs 155 in its August 1, 2011 research report.

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Angel Broking is bullish on Indian Overseas Bank (IOB) and has recommended accumulate rating on the stock with a target of Rs 155 in its August 1, 2011 research report.

"For 1QFY2012, Indian Overseas Bank (IOB) reported a weak set of results, registering muted growth of 2.6% yoy in its net profit to Rs206cr, considerably below our as well as street's estimates. Even muted profit growth was aided by a favourable base (as the bank had charged of Rs82cr towards exceptional items in 1QFY2011)."

"During 1QFY2012, the bank's business growth continued to be healthy, with advances growing by healthy 6.5% qoq (up 43.6% yoy) and deposits increasing by 4.1% qoq (up 38.1% yoy). The bank's profitability in 1QFY2012 was also aided by lower tax rate (20.2% vs. 27% in 1QFY2011) due to write-back of Rs100cr of excess provisions and the bank not charging off ~Rs21cr towards amortisation of the merger deficit. CASA ratio dipped by 264bp qoq to 27.6%. The reducing share of CASA deposits and the higher interest rate environment resulted in a sharp 78bp rise in cost of deposits, which was not fully compensated by the 61bp qoq increase in yield on advances, resulting in NIM compression of 31bp qoq to 2.9%. Fee income rose by healthy 29.9% yoy and recoveries picked up strongly. Slippages ratio for the quarter moderated from the high 4.3% of 4QFY2011 but remained relatively high at 1.7%. The bank is yet to migrate accounts below Rs50lakhs (~20% of loan book) to system-based NPA recognition platform, which is likely to keep slippages high in 2QFY2012 as well. Provision coverage ratio (including technical write-offs) improved to 73.5% during the quarter."

"We maintain our positive view on the stock, considering the improvement in RoEs expected going forward. However, a flagging asset quality remains the biggest risk to the bank's ability to deliver sustained performance in the future. At the CMP, the stock is trading at moderate valuations, in our view, of 0.84x FY2013E P/ABV. We maintain our Accumulate rating on the stock with a target price of Rs 155, valuing the stock at 0.95x FY2013E ABV," says Angel Broking research report.

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To read the full report click on the attachment