Company Report | Q2FY12 Result Update

LONG TERM INVESTMENT CALL

21 October 2011
Industry CMP (INR) Target (INR) 52 week High/Low (INR) Market Cap (INR BN) 3M Avg. Daily Volumes P/BV FY12E Shareholding Pattern (%)
Others, 16.05% Institutions, 15.78%

BUY

Banking 104 196 202/94 103187 2074600 0.7x

Q2FY12 Result Highlights

IDBI Banks (IDBI) PAT grew by 20% to INR 5.15 bn on YoY basis and on sequential basis by 54% due to lower provisioning & tax expenses. However the net interest income (NII) has fallen by 4% & 3% to INR 11.2 bn on YoY & QoQ basis respectively. The noninterest income stood at INR 4.7 bn declining by 3% on YoY basis, due to lower fee income of INR 3.6 bn. Advances grew by 20% to INR 1.56 tn because of higher growth in retail portfolio. Deposits grew by 13% to INR 1.7 tn. The proportion of bulk deposits in total deposits is also reducing due to a rise in retail term deposits. It now constitutes around 60% of deposits. The bank is targeting to reduce the same to 50% in the next two years. CASA ratio increased to 19.19% in Q2FY12 from 15.26% in Q2FY11. Due to higher cost of deposits NIMs declined by 24 bps & 7 bps to 2% in Q2FY11 on YopY & QoQ basis respectively.

FII, 3.04%

Promoters, 65.13%

Stock Performance During Q2FY12, overall asset quality deteriorated with higher
200 180 160 140 120 100 80 Dec Aug Jul Nov Sep Jan Jun Oct May Feb Mar Apr Oct

slippages. The gross and net non performing assets (NPAs) increased to 2.47% and 1.57% in Q2FY12 from 1.88% and 1.19% in Q2FY11 respectively. The slippages remained high at INR 9.25 Bn, mainly contributed by the small and medium enterprise (SME) segment. The tax provisions were lower during the quarter (24.8% compared to 44.6% in Q2FY12) while they were around 34% for H1FY12, in line with the guidance for the full year. The provision expenses declined by 27.4% & 24.7% on YoY & QoQ basis respectively, due to lower provision requirement on NPAs (INR 3 Months -22.0 -8.5 1 Year -36.9 -14.9 1.83 Bn vs INR 3.6 Bn in Q1FY12). The bank also provided INR 1.08 Bn towards depreciation in security receipts. The cost to income ratio of the bank stood at 37.1% as against 38.2% in Q2FY11 and 34.9% in Q1FY12. The bank has opened 25 branches during the quarter taking the total branches to 908. The bank plans to expand its branch network to 1,000 branches by FY12.
IDBI NSE Nifty

Performance (%) 1 Month IDBI -3.7 NIFTY -0.9

* Source: Ace, Unicon Research

Analyst Shweta Rane | srane@unicon.in

Wealth Research, Unicon Financial Intermediaries. Pvt Ltd. Email: wealthresearch@unicon.in

Outlook & Valuation

The management has maintained its strategy of slower loan book growth, in favour of a higher CASA share and higher NIMs & indicated to take branch network to about 1050 by end of FY12. While the present 908 branches are predominantly urbanconcentrated (67%), the bank intends to increase its presence in semi-urban & rural areas going forward. We believe this would continue to increase the contribution of retail deposits in the banks funding mix and drive strong growth in CASA. In wake of lower NIMs, the bank has indicated a strategy of lower advances growth (~15% for FY12) than the system to concentrate on increasing the percentage of low-cost CASA deposits and consciously shifting focus from large corporate lending to retail and MSME lending to bring in higher-yielding loans. In next few quarters bank is likely to face challenges on the asset quality front, due to slow recovery, higher slippages. Though, the bank has opted for low business growth and improving performance, we expect the bank to return to growth trajectory once its performance parameters come in line with industry average. At CMP, the stock is trading at 0.6x BV of FY13E. We maintain BUY recommendation with a price target of INR 196. Financials
(INR in mn)

Interest income Interest expense Net Interest Income Other Income Total Operating income Operating expenditure Operating Profit Operating Profit (%) Provisions PBT Tax PAT EPS (INR.) NIMs
Source: Company, Unicon Research

Q2 FY12 58123 46903 11220 4791 16011 5947 10065 16.00 3206 6859 1700 5159 5.24 2.00

Q2 FY11 45773 34092 11680 4921 16602 6345 10256 20.23 4415 5841 1550 4291 4.36 2.24

Y-o-Y 26.98 37.58 -3.94 -2.64 -3.56 -6.28 -1.87 -423 bps -27.40 17.43 9.68 20.23 20.21 -24 bps

Q1 FY12 56289 44765 11524 4309 15833 5525 10308 17.01 4257 6052 2700 3352 3.40 2.07

Q-o-Q 3.26 4.78 -2.64 11.19 1.12 7.62 -2.36 -101 bps -24.70 13.34 -37.04 53.93 53.93 -7 bps
*Standalone

Wealth Research, Unicon Financial Intermediaries. Pvt Ltd. Email: wealthresearch@unicon.in

Unicon Investment Ranking Methodology

Rating Return Range Buy >= 20% Accumulate 10% to 20% Hold -10% to 10% Reduce -10% to -20% Sell <= -20%

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Wealth Research, Unicon Financial Intermediaries. Pvt Ltd. Email: wealthresearch@unicon.in