Accumulate Syndicate Bank; target Rs 120: Dolat Capital

“Syndicate Bank, the in-coming CMD (Mr. Sanghvi) appeared confident of expanding bank’s credit book faster than the banking industry; he expects credit growth in a range of 22-24% in FY13. There is a change in stance as the present bank’s management continued with moderate credit book expansion at 16-17% and the in-coming CMD expects credit expansion higher than industry pace at 22-24% YoY. The latter believes that there is significant scope to accelerate retail and MSME loan books. Credit composition could re-balance in favor of retail credit; its composition could further increase by 200—300 bps to 23-24% by end-March’13 (from 21% as on end-March’11). Margin is expected to moderate in FY13 in declining interest rate scenario, but the in-coming CMD indicated that fresh equity capital and containment of liabilities cost would lead to marginal drift in margin. Fee income growth would enhance further on the back of strong loan growth and levying processing charges diligently across the loan book.”

“The in-coming CMD said there is a scope of improvement on treasury front as well. He indicated that in declining interest rate scenario and with serious efforts in place, the bank could make handsome gains. On gross NPL front, both the people (the current CMD and in-coming CMD) indicated that net addition to GNPL would be negligible; GNPL would not rise hereon by the end-FY13. The bank’s management expects write-back on tax provision due to writeoff done in agriculture debt waiver & relief schemes, though this matter requires further clarity. Overall, the in-coming CMD sounded quite positive on credit growth (particularly opportunities in retail credit), fee income growth, treasury gains and past overprovisioning on employee expenses (below the line) & NPLs.”

“In another development, in the bank’s EGM (extra-ordinary general meeting to be held on 22nd March’12), the bank’s board of directors (BoD) would consider and permit, equity shares allotment to GoI and LIC on preferential basis to tune of Rs 5.4bn and Rs 3.3bn respectively at a price of Rs 114 per share, subject to approval. As on end-December’11, Syndicate Bank’s book value and adjusted value were at Rs 134 and Rs 116 respectively; the equity share allotments are being done at below book value and degree of equity dilution would be close to 15.1%. The equity dilution is book value and RoAE dilutive, though bottomline would increase marginally due to fresh equity funds availability. We change our earning estimates to factor in fresh equity capital infusion of Rs 8.7bn. We increase our FY13 earning estimates by 1.6% to Rs 15.9bn; though, we reduce our target price by 1.8% to Rs 120 at 0.93x adjusted book value FY13. Accumulate the stock,” says Dolat Capital research report.

Public holding more than 90% in Indian cos

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