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IDBI Bank: Profits continue to decline - Views on News from Equitymaster

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IDBI Bank: Profits continue to decline
Nov 18, 2014

IDBI Bank declared its results for the second quarter (2QFY15) and first half (1HFY15) of the financial year 2014-15. The bank has reported 4.8% YoY growth in interest income, whereas 38.4% YoY fall in net profits for the quarter. The first half observed 55% YoY fall in net profits. Here is our analysis of the results.

Performance summary
  • Net interest income (NII) declined by 5.2% YoY in 2QFY15, on the back of slower growth in advances at 6% YoY
  • Net profit declines by 38.4% YoY in 2QFY15, on account of higher provisions.
  • Net interest margin declined to 1.82% during 1HFY15 from 2.15% a year ago.
  • Cost to income ratio improves from 38.2% during 2QFY14 to 44.8% during the current quarter
  • Net NPA (non-performing assets) to advances increase to 2.79% in 2QFY14 from 2.82% in 2QFY14.
  • Capital adequacy ratio currently stands at 11.7% at the end of 3QFY14 as per BASEL III norms.
Rs (m) 2QFY14 2QFY15 Change 1HFY14 1HFY15 Change
Interest income 65,357 68,501 4.8% 132,641 135,831 2.4%
Interest expense 50,521 54,440 7.8% 103,055 109,260 6.0%
Net Interest Income 14,836 14,062 -5.2% 29,586 26,571 -10.2%
Net interest margin (%)       1.80% 2.2%  
Other Income 5,787 7,604 31.4% 12,958 12,601 -2.8%
Other Expense 7,875 9,697 23.1% 16,630 17,921 7.8%
Provisions and contingencies 8,787 9,905 12.7% 17,084 17,667 3.4%
Profit before tax 3,961 2,064 -47.9% 8,831 3,585 -59.4%
Tax 2,038 879 -56.9% 3,838 1,339 -65.1%
Effective tax rate 51.5% 42.6%   43.5% 37.3%  
Profit after tax/ (loss) 1,923 1,185 -38.4% 4,992 2,246 -55.0%
Net profit margin (%) 2.9% 1.7%   3.8% 1.7%  
No. of shares (m)         1,332.8  
Book value per share (Rs)*         138.1  
P/BV (x)         0.5  
* (Book value as on 30th September 2014)

What has driven performance in 2QFY15?
  • There seems to be no respite coming the IDBI bank’s way. Despite below average growth in loan book, the asset quality deterioration and the subsequent higher provisioning have together taken a toll on the bank’s profitability. The net profit at Rs 1185 mn has reported a de-growth as high as 38.4% YoY. For 1HFY14, the profits decelerated by 55% YoY.

    CASA ratio remains still same…
    (Rs m) 2QFY14 % of total 2QFY15 % of total Change
    Advances 1,835,860   1,950,570   6.2%
    Deposits 2,025,590   2,380,060   17.5%
    CASA 445,070 22.0% 524,330 22.0% 17.8%
    Tem deposits 1,580,520 78.0% 1,855,730 78.0% 17.4%
    Credit deposit ratio 90.6%   82.0%    

  • The gross NPAs to advances have too increased from 4.9% in September 2013 to 5.7% in September 2014. Among the NPAs, Agri and Allied activities take the largest chunk of 15.72% during the quarter.

  • IDBI Bank continues to carry bulky deposits on its balance sheet with terms deposits contributing almost 78% to the total deposits. Subsequently, the CASA proportion stood lower and formed merely 22% of the total deposits as at the end of September 2014.

  • The non-interest income to total income has improved to 10% from 8.13% in 2QFY14.
What to expect?

At the current price of Rs 71, the stock is valued at 0.66 times the FY17 adjusted book value.

There seems to be no respite coming for IDBI bank; particularly on the asset quality front. The risky corporate exposures and the bad loans pile-up continue to plague the earnings of IDBI bank. Moreover with limited business growth prospects and earnings pressures the going is getting tougher for IDBI bank.

IDBI bank stands on a weak footing with respect to all the operational parameters. Hence we recommend investors not to buy stock at these levels.

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