Buy Indian Overseas Bank; target of Rs 124: Dolat Capital

Dolat Capital is bullish on Indian Overseas Bank and has recommended buy rating on the stock with a target of Rs 124 in its April 24, 2012 research report.

“In Q4FY12, the bank is expected to record a business growth of 23% YoY to Rs 3.2tn. Going forward, in FY13, the bank’s management expects credit and deposit growth to moderate in a range of 18-19% and 17-18% respectively. In deposits, CASA share is expected to be maintained at 26% level. Fresh incremental loans are disbursed mainly to Power, Steel and manufacturing sectors. Majority of incremental credits have been provided for capex oriented loans. In Q3 FY12, SME and overall priority sectors were key loan growth drivers. In Q4 FY12, the management expects expansion in NIM on sequential basis. In Q3 FY12, the bank reported margin of 2.6% compared to 3.3% in Q3 FY11; in 9MFY12, the bank’s margin fell by 34bps to 2.74%. Further, in FY13, the management expects to maintain NIM at FY12 level.”

“In end-March’12, it is expected that the bank’s GNPA to remain flat (QoQ) at Rs 40bn. In Q4FY12, on asset quality front, it is expected that the bank would clock strong recoveries and write-offs would also be reasonably high. In 9MFY12, Out of total slippages of Rs 22bn, Rs 4.9-5.0bn came from CBS migration (around Rs 2.9bn from agriculture sector alone). Slippages accretion due to CBS migration would be absent in FY13, thereby aiding asset quality. In Tirupur textile industry (particularly yarn-dyeing units), around 18 manufacturing & processing units (with an asset base of Rs 12bn) have been impacted. IOB’s exposure to these units is close to Rs 1.2bn, and all banks’ exposure to these units is close to Rs 7bn. IOB’s exposure to Hotel Leela is around Rs 3.5bn (0.25% of its total advances). Total exposure to power discoms stands at Rs 53.4bn (3.9% of its total advances) and to telecom sector is Rs 12bn (0.9% of its total advances).”

“Overall, for FY13, IOB’s management guides moderation in business growth with stable margin. Also, asset quality could improve considering absence of one-off items (recognition of NPA through CBS migration process) in gross slippages and contained slippages from restructured loan book. In our view, the bank’s business would expand by 18.5% YoY with slight drift in margin. In FY13, GNPA is expected to rise on the back of further loan restructuring till 2HFY13 and slippages from the restructured loan book. During FY14, we estimate IOB’s RoAA and RoAE at 0.6% and 13% respectively. We maintain our earnings estimates for FY13 and introduce FY14 earnings estimates and rollover our target price on FY14’s estimates. We upgrade our stock rating to BUY (from previous Accumulate rating) with a target price of Rs 124 at 0.9x adjusted book value FY14,” says Dolat Capital research report.   

Public holding more than 90% in Indian cos

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