X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
IDBI Bank: In anticipation of capital support - Views on News from Equitymaster
StockSelect
  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

IDBI Bank: In anticipation of capital support
Aug 17, 2010

IDBI Bank declared its 1QFY11 results. The bank has reported 171% YoY and 46% YoY growth in net interest income and net profits respectively. Here is our analysis of the results.

Performance summary
  • Net interest income grows by 171% YoY in 1QFY11, on the back of 38% YoY growth in advances.
  • Capital adequacy ratio at 11.9% at the end of June 2010. This is expected to go up to 13% post government’s capital infusion.
  • Net interest margins higher at 1.6% from 0.8% in 1QFY10; CASA proportion higher at 13%.
  • Net NPA to advances stable at 1.2% in 1QFY11, as was the case in 1QFY10.
  • Cost to income ratio shrinks from 49% in FY09 to 40% in FY10.
  • Net profit margins drop by 0.6% YoY in FY10 due to higher provisioning costs.


Standalone numbers
Rs (m) 1QFY10 1QFY11 Change
Interest income 34,613 42,888 23.9%
Interest expense 31,468 34,378 9.2%
Net Interest Income 3,145 8,510 170.6%
Net interest margin (%) 0.8% 1.6%  
Other Income 7,575 4,661 -38.5%
Other Expense 3,159 4,862 53.9%
Provisions and contingencies 5,603 5,017 -10.5%
Profit before tax 1,958 3,292 68.1%
Tax 240 785 227.1%
Effective tax rate 12.3% 23.8%  
Profit after tax/ (loss) 1,718 2,507 45.9%
Net profit margin (%) 5.0% 5.8%  
No. of shares (m)   724.8  
Book value per share (Rs)*   116.5  
P/BV (x)   1.1  
* (Book value as on 30th June 2010)

What has driven performance in 1QFY11?
  • Despite the handicap of lower capital adequacy, IDBI Bank has managed to outperform the sector average by clocking nearly 38% YoY growth in advances in 1QFY11. Further, in doing so, the bank has paid heed to margins which have improved over the quarters, albeit marginally. IDBI has indeed been particularly aggressive in growing its retail advance portfolio, which has grown at a faster clip than that in most PSU banks, although on a lower base.

    The rise in the proportion of CASA (current and savings account) from 12% in 1QFY10 to 13% in 1QFY11 has helped the bank improve its net interest margins (NIMs), albeit marginally. Also the upward re-pricing of assets has facilitated the improvement in NIMs for the bank. The advance growth and NIMs have come in marginally higher than our estimates.

    High cost growth
    (Rs m) 1QFY10 % of total 1QFY11 % of total Change
    Advances 979,720   1,353,290   38.1%
    Retail 156,755 16.0% 212,467 15.7% 35.5%
    Corporate 822,965 84.0% 1,140,823 84.3% 38.6%
    Deposits 1,155,540   1,572,040   36.0%
    CASA 135,198 11.7% 205,937 13.1% 52.3%
    Tem deposits 1,020,342 88.3% 1,366,103 86.9% 33.9%
    Credit deposit ratio 84.8%   86.1%    

  • IDBI’s other income fell by 39% in 1QFY11 due to lower treasury gains, bringing the non- interest income to 35% of total income in 1QFY11 from 60% in 1QFY10. The proportion of fees to total income, however, remained at 29%. This can be attributed to the bank’s extended retail operations and the life insurance venture with Federal Bank and Fortis Insurance International (in which IDBI has 48% stake).

  • Our biggest concern for IDBI Bank so far had been its poor provisioning policy. The same has now been addressed and will be benign to the bank’s performance at a time when its margins are on an upward trend. IDBI Bank’s net NPAs have remained at 1.2% in 1QFY11. The bank’s provision coverage, has however, gone up from 40% in FY09 to 74% in 1QFY11. This makes it compliant with RBI’s mandate of 70% coverage by 1HFY11. Going forward this will reduce the provisioning requirement of the bank and fetch it the cost advantage due to its lean structure.

  • IDBI’s cost to income ratio has gone up to 37% in 1QFY11 from 29% in 1QFY10, However, the bank still has the potential to leverage its lean cost structure and improve its provisioning policy as well as grow its asset base.

What to expect?
At the current price of Rs 126, the stock is trading at 0.8 times our estimated FY13 adjusted book value ( ResearchPro subscribers can view latest updates here). Although the capital adequacy ratio of the bank at 11.9% in 1QFY11 is inadequate to sustain the current growth rates, the additional capital infusion by the government may provide some headroom for growth. We are enthused by the bank’s efforts to accelerate non-fund income growth and sustained asset re-pricing ability. We reiterate our long term positive outlook on the bank.

To Read the Full Story, Subscribe or Sign In


Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

IDBI BANK SHARE PRICE


Feb 23, 2018 (Close)

TRACK IDBI BANK

  • Track your investment in IDBI BANK with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks

IDBI BANK - BANK OF INDIA COMPARISON

COMPARE IDBI BANK WITH

MARKET STATS