Buy IDBI Bank; target of Rs 136: SKP Securities

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Buy IDBI Bank; target of Rs 136: SKP Securities

SKP Securities is bullish on IDBI Bank and has recommended buy rating on the stock with a target of Rs 136 in its February 8, 2012 research report.

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SKP Securities is bullish on IDBI Bank and has recommended buy rating on the stock with a target of Rs 136 in its February 8, 2012 research report.

"Incorporated in 1964, IDBI is one of the leading mid-sized public sector banks. As on Q3FY12 the bank had total assets valued at Rs. 2.6 trillion, backed by a distribution network of 933 branches and 1518 ATMs spread across 619 locations. The bank has significant presence in the urban and metro regions."

"Higher dependence on term deposits has urged cost of deposits to rise more than yield on advances for Q3FY12, further the bank expects to grow their advances book on the back of low yielding priority sector lending for Q4FY12. As a result we expect NIMs to come under pressure for FY12E. Moreover, we believe softening interest rates and CASA ratio improving to 24% in FY13E will benefit NIMs. We expect NIMs to decrease to 1.8% in FY12E but improve to 1.9% and 2.0% in FY13E and FY14E respectively. Given the current economic scenario, We expect IDBI's asset quality to witness stress in FY12E. We expect GNPA's to increase to 2.6% in FY12E and 2.5% in FY13E from 1.7% reported in FY11. Whereas NNPA's are expected to rise to 2.2% in FY12E and 2.0% in FY13E from 1.1% in FY11. IDBI's credit grew by 17% YoY and flat on QoQ basis in Q3FY12. The bank expects to increase its advances portfolio but largely driven by the growth in the priority sector advances. IDBI's advances has increased by 24.4% CAGR between FY06-11, we expect a 17.3% CAGR between FY11 -14E."

"At CMP the stock is trading at a P/ABV of 0.9x, 0.8x for FY12E, FY13E and FY14E respectively. We have valued the bank at 0.9x on FY14E ABV of Rs. 151, yielding a potential upside of 29% and recommend "Buy" rating for a target of Rs. 136 (18 months). We believe IDBI's underperformance vis-à-vis bank nifty has been overdone. A P/ABV of 0.9x is justifiable for a bank with 20+ CASA ratio, 10.5% ROAE and 0.6% ROAA," says SKP Securities research report.   

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To read the full report click on the attachment