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Spark Capital: Q3FY13 Result Reviews of Indian Bank




Spark Capital Advisors(India) Private Limited


08 Feb 2013





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Indian Bank - No comfort on asset quality: Maintain SELL Indian Bank’s (INBK) 3QFY13 result was led by a sharp deterioration in asset quality while margins continued to contract – NIMs are down 50bps yoy. Other income was disappointing declining 15% yoy, while business growth was strong as advances and deposits registered a sequential growth of 5% and 3% respectively. Loans to the infrastructure sector grew 6% qoq, and currently account for 19% of the loan book – amongst the highest in the peer group. Close to 28% of the loan book is to risky sectors, also the slippage from restructuring at 4% is far removed from the 25-30% number reported by larger peers, a key risk in our view. On account of the aforesaid reasons we continue to rate the stock a SELL with a target price of Rs 162 valuing the stock at 1x our stress case FY14E ABV. Asset quality woes continued for the bank, with slippages rising 1.9x qoq to 5.8% (annualised), while Rs. 4.5bn was restructured during the quarter, taking the restructured stock to 10.8% of total advances - amongst the highest for PSU banks. Less than a third (31%) of overall SEB exposure stands restructured, leaving open the possibility of higher restructuring from this sector while implementation of the Mahapatra committee’s recommendations will keep provisions escalated into FY14. Operating expenses were sharply higher by 10.3% qoq, driven by a 17% qoq jump in employee costs– a trend we expect to continue as the bank gears up for the next round of wage revisions; accordingly we estimate a CIR of 43% for FY14.

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