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IDBI Bank: Capital base gets a booster
Apr 24, 2012

IDBI Bank declared its FY12 (Financial Year 2011-2012) results. The bank has reported 26% YoY and 23% YoY growth in interest income and net profits respectively. Here is our analysis of the results.

Performance summary
  • Net interest income (NII) grows by 6.5% YoY in FY12, on the back of a 15% YoY growth in advances.
  • Capital adequacy ratio currently stands at 14.6% at the end of FY12 from 13.6% at the end of FY11.
  • Net interest margin comes in slightly lower at 2.02% as compared to 2.1% in FY11.
  • Net NPA (non-performing assets) to advances higher at 1.61% in FY12 from 1.06% in FY11.
  • Cost to income ratio increases to 39% in FY12 from 35% in FY11 on account of branch addition and retirement benefits to a certain category of employees.
  • Net profits increase by 23% YoY in FY12 and 49% YoY in 4QFY12, due to lower tax outlays and provisions.
  • The board recommends an interim dividend of Rs 2 per share (total 3.5 for FY12), working out to a dividend yield of 3%.

Rs (m) 4QFY11 4QFY12 Change FY11 FY12 Change
Interest income 50,234 60,795 21.0% 185,412 233,699 26.0%
Interest expense 39,166 48,686 24.3% 142,719 188,251 31.9%
Net Interest Income 11,068 12,109 9.4% 42,693 45,449 6.5%
Net interest margin (%)       2.10% 2.02%  
Other Income 6,772 7,770 14.7% 21,432 21,188 -1.1%
Other Expense 6,173 7,933 28.5% 22,547 26,075 15.6%
Provisions and contingencies 2,819 2,738 -2.9% 18,769 14,265 -24.0%
Profit before tax 8,849 9,208 4.1% 22,810 26,297 15.3%
Tax 3,687 1,500 -59.3% 6,307 5,981 -5.2%
Effective tax rate 41.7% 16.3%   27.6% 22.7%  
Profit after tax/ (loss) 5,163 7,708 49.3% 16,503 20,316 23.1%
Net profit margin (%) 10.3% 12.7%   8.9% 8.7%  
No. of shares (m)         1278.4  
Book value per share (Rs)*         137.2  
P/BV (x)         0.8  
* (Book value as on 31st March 2012)

What has driven performance in FY12?
  • IDBI Bank met its target of 15% growth in the advance book for FY12. However, this came in lower than the sector average. IDBI has not seen much traction in its retail book this fiscal. Its SME portfolio also saw a sharp dip in the twelve month period, falling 29%. The company is trying to grow its priority sector book in order to meet regulatory guidelines; hence it saw a leap in its agri book. This was mainly on account of an increase in securitization transactions towards the last quarter of FY12. IDBI expects to reach the 40% priority sector target by FY13, but this may be a tall order. It maintains its 15% loan book growth target for FY13 as well. From seeing a 16.6% YoY increase in its deposit base in FY12, it expects this to increase by 11% in FY13.

  • The bank has paid heed to margins which have stayed in a similar range over the year, despite an increase in interest rates. The same has decreased marginally from 2.1% at the end of FY11 to 2.02% currently in FY12. This has come higher than our conservative margin estimates.

  • The rise in the proportion of CASA (current and savings account) from 20.9% in FY11 to 24.1% in FY12 is commendable. It managed to grow its CASA base by a whopping 35% despite the tough environment and intense competition. This is line with the focused strategy of the bank to increase its retail client base, and thus improving profitability and margins. It plans to increase its CASA levels to around 25% going forward.

    Increased focus on agri book, SME falters
    (Rs m) FY11 % of total FY12 % of total Change
    Advances 1,570,980   1,811,580   15.3%
    Retail 293,280 18.7% 304,720 16.8% 3.9%
    Agri 105,980 6.7% 189,060 10.4% 78.4%
    Corporate 1,057,140 67.3% 1,235,870 68.2% 16.9%
    SME 114,580 7.3% 81,930 4.5% -28.5%
    Deposits 1,804,860   2,104,930   16.6%
    CASA 376,780 20.9% 507,240 24.1% 34.6%
    Tem deposits 1,428,080 79.1% 1,597,690 75.9% 11.9%
    Credit deposit ratio 87.0%   86.1%    

  • IDBI's other income fell by 1% in FY12 due to lower fee income and forex gains, bringing the non-interest income to 32% of total income in FY12 from 33% in FY11. The proportion of fees to total income, however remained relatively stable at around 26%, compared to 27% in FY11.

  • IDBI Bank's net NPAs have increased to 1.61% in FY12, from 1.06% earlier. Its provisioning coverage ratio currently stands at 68.3%. The company did some up-gradations recoveries of during the year, positively impacting the bottom-line despite an increase in the restructured book.

  • IDBI's restructured book more than doubled over the previous year, with large accounts in the telecom, air transport, metals etc slipping into this category. Since 3QFY12, the bank's restructured loan portfolio increased to Rs 100 bn from Rs 95 bn in December 2011. Main accounts restructured included Air India, Vijay Electricals, 3i Infotech and New Tirupur Area Development Corporation Ltd. However the bank's management does not expect further restructuring in near future.

  • The bank saw an increase in its capital base on account of a capital infusion from the Government of India and Life Insurance Corp amounting to a total of Rs 1.2 bn. An additional infusion was on account of the conversion of Tier 1 bonds into equity capital, amounting to Rs 21 bn. The Governments' stake in IDBI Bank has increased to 75% from 65% previously. Post this infusion the total capital adequacy ratio now stands at 14.6%, compared to 13.6% previously. The tier 1 capital stands at 8.4% at the end of FY12, above the regulatory requirement of 6%, and the 8% comfort level for PSU banks.

What to expect?
At the current price of Rs 106, the stock is valued at an attractive 0.8 times our estimated FY14 adjusted book value. The bank's provisioning policy helped stand it in good stead, as it was able to reverse some of its provisions and thus improve its profitability. However having a large proportion of bulk deposits and a relatively lower CASA share impacted NII growth. Despite this fact, the bank was still able to hold onto its margins. If the monetary easing continues, the bank may see less pressure on the same going forward, it expects NIMs to remain in the 2% range.

IDBI Bank is strategically trying to focus on growing its balance sheet at a relatively slow pace. It plans to focus on building up capacity on the priority sector front, to meet Reserve Bank Of India (RBI) guidelines. We believe that this slower target fits in with the current economic climate and the rate environment. We are also enthused by the bank's efforts to bring in efficiency in operations, increase its CASA base, and sustain margins. A few concerns are increased slippages and restructured accounts in risky sectors; however the bank does not expect much further pain on this front. Irrespective, we expect the company to take this in its stride and we reiterate our long term positive view on the bank on account of its reasonable valuations. We maintain our 'Hold' rating on the stock.

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