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CMP Target Price `71 2QFY12 1,266 907 207 % chg (yoy) (1.6) (11.0) (23.6)
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code
Indian Overseas Bank (IOB) reported a disappointing set of numbers with its net profit declining by 23.6% yoy to `158cr. A lower NIM and significantly higher slippages were the major disappointments. We recommend a Neutral rating on the stock. NIM lower on interest reversal; Slippages significantly higher for 2QFY2013: During 2QFY2013, the banks loan growth remained stronger than the system, with growth in advances coming in at 20.4% yoy. The growth in deposit was also reasonably healthy at 15.6% yoy. The CASA deposits growth rate stood at a moderate 5.3% yoy. While savings account deposits managed to increase by 10.2% yoy, the current account deposits declined by 9.5% yoy. The CASA ratio as of 2QFY2013 stood at 25.0%. During the quarter, the yield on advances came in lower by 48bp sequentially at 10.2%, primarily on account of interest rate reversals of `168cr. Overall the reported NIM was lower by 26bp and stood at 2.3%. During 2QFY2013, the growth in non-interest income (excluding treasury) was muted at `375cr. The fee income performance was weak as commissions, exchange and brokerage (CEB) income declined by 7.2% yoy to `201cr. Slippages surprised negatively at `1,854cr (5.3% annualised slippage ratio vs 2.5% in 1QFY2013), more than double the average slippage figures over the preceding six quarters. Some of the slippages were chunky in nature with 11 accounts contributing for around `750cr worth of slippages. The PCR ratio dropped by 858bp during 2QFY2013 and now stands at a weak 58.5%. Outlook and valuation: We remain wary of further incremental asset quality pressures and provisioning expenses that could arise due to banks continued aggressive lending over the last few quarters. Also, any further increase in provisioning expenses on standard restructuring advances (increased to 2.75% by the RBI) is expected to hit the bank materially owing to its high proportion of restructuring advances to overall loan book. Considering the overhang on asset quality as well as the relatively low tier-I capital adequacy, we recommend a Neutral rating on the stock. Key financials
Y/E March (` cr) NII % chg Net profit % chg NIM (%) EPS (`) P/E (x) P/ABV (x) RoA (%) RoE (%)
Source: Company, Angel Research
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 69.6 14.3 3.6 12.4
3m (0.4) (16.0)
FY2011 4,208 35.1 1,073 51.7 2.8 17.3 4.1 0.6 0.7 14.8
FY2012 5,016 19.2 1,050 (2.1) 2.6 13.2 5.4 0.5 0.5 11.1
FY2013E 5,339 6.4 977 (7.0) 2.3 12.3 5.8 0.5 0.4 8.8
FY2014E 6,450 20.8 1,589 62.7 2.5 19.9 3.6 0.5 0.6 13.1
Vaibhav Agrawal
022 3935 7800 Ext: 6808 vaibhav.agrawal@angelbroking.com
Varun Varma
022 3935 7800 Ext: 6847 varun.varma@angelbroking.com
Sourabh Taparia
022 3935 7800 Ext: 6872 varun.varma@angelbroking.com
2QFY13 5,104 3,868 1,092 72 71 3,858 1,246 411 375 201 36 64 110 1,657 850 562 288 807 552 454 (58) 155 255 97 158 38.0
1QFY13 5,026 3,909 1,035 83 3,698 1,328 377 401 230 (25) 58 113 1,705 858 562 296 847 520 332 51 138 326 93 233 28.5
% chg (qoq) 1.5 (1.0) 5.6 (12.5) 4.3 (6.2) 9.1 (6.5) (12.6) (246.7) 10.3 (3.0) (2.8) (0.9) 0.1 (2.8) (4.7) 6.0 37.1 (212.9) 12.5 (21.7) 4.4 (32.1) 951bp
2QFY12 4,395 3,334 985 76 3,129 1,266 427 378 217 49 64 97 1,694 787 527 260 907 636 463 75 99 270 63 207 23.3
% chg (yoy) 16.1 16.0 10.9 (5.2) 23.3 (1.6) (3.8) (0.8) (7.2) (26.6) (0.6) 13.1 (2.1) 8.1 6.8 10.7 (11.0) (13.3) (1.8) (177.0) 57.2 (5.5) 54.1 (23.6) 1470bp
1HFY2013 10,130 7,777 2,127 155 71 7,556 2,574 788 776 431 11 122 223 3,362 1,708 1,124 584 1,654 1,072 786 (7) 293 582 190 392 32.6
1HFY2012 8,381 6,336 1,878 167 5,927 2,454 766 733 395 34 164 174 3,220 1,511 1,029 482 1,709 1,181 898 128 155 528 115 413 21.8
% chg (yoy) 20.9 22.7 13.2 (7.1) 27.5 4.9 2.8 6.0 9.1 (66.1) (25.6) 28.6 4.4 13.1 9.3 21.2 (3.3) (9.3) (12.5) (105.1) 89.2 10.2 65.1 (5.1) 1086bp
Estimates 1,390 402 1,792 876 916 497 420 120 300
Variation (%) (10.4) 2.2 (7.5) (2.9) (11.9) 11.0 (39.1) (18.8) (47.2)
2QFY13
1QFY13
% chg (qoq)
2QFY12 % chg (yoy) 20.4 15.6 318bp (9.5) 10.2 5.3 (245)bp (36)bp 61bp 169bp 36bp 11bp 36bp 127bp (83)bp 485bp 52.1 80bp 124.5 104bp (1324)bp 171bp (16)bp
150,016 148,366 189,115 184,882 79.3 10,231 37,052 47,283 25.0 12.1 7.6 7.7 10.2 7.3 9.6 7.4 2.3 51.3 5,930 3.9 3,378 2.3 58.5 5.3 0.8 80.2 10,985 36,370 47,355 25.6 12.6 7.9 7.6 10.7 7.3 9.8 7.3 2.6 50.3 4,410 3.0 2,152 1.5 67.1 3.1 0.6
1.1 124,550 2.3 163,579 (92)bp (6.9) 1.9 (0.2) (61)bp (52)bp (29)bp 13bp (48)bp 1bp (21)bp 4bp (26)bp 97bp 34.5 90bp 57.0 77bp (858)bp 218bp 20bp 76.1 11,301 33,610 44,912 27.5 12.4 7.0 6.0 9.9 7.2 9.2 6.1 3.2 46.5 3,898 3.1 1,505 1.2 71.8 3.6 1.0
12.8
27.5
26.2
26.4
25.5
4.5 8.2
6.4 2.1
6.2 6.8
5.4 3.6
1.1 2.3
2.0
65.0 60.0
25.0
8.0
6.0 -
2.59 2.33
2QFY13 1QFY13 201 36 64 110 411 375 230 (25) 58 113 377 401
% chg (qoq) 2QFY12 (12.6) (246.7) 10.3 (3.0) 9.1 (6.5) 217 49 64 97 427 378
3.6
2.5
3.6
2.5
5.3
3.1 1.2
3.0 1.2
2.7 1.4
3.0 1.5
3.9 2.3
40.0
1.0
0.9
Investment concerns
Restructuring book to lead to higher provisioning
The pace of business growth for the bank, which had picked up since 2HFY2011, has continued even in 2HFY2013, despite of domestic macro headwinds. This has lead to increased pressures on the asset quality front for the bank as evidenced in the increasing rate of slippages over the last year. The slippages were significantly higher in 2QFY2013 at `1,854cr, which were double than the average slippages over the preceding six quarters. Also as a result of high pace of balance sheet expansion, the banks restructured book has more than doubled in the last 12 months. We have lowered our bottomline estimates for FY2013 and FY2014 by 23.2% and 6.3%, respectively on
October 30, 2012
account of the recent Reserve Bank of India (RBI)s directive of increasing the provisioning expenses on restructured standard advances from 2.0% to 2.75%. The RBI has proposed to increase this provisioning to 5% by FY2014 (which will lead to 9.4% impact on the revised FY2014 PBT) and then eventually remove the distinction between restructuring and NPA advances. Banks such as IOB are expected to be the biggest losers from this transition as it has one of the highest proportions of restructuring books to its advances (9.8% as of 2QFY2013) within the banking industry.
Earlier estimates FY2013 16.0 16.0 25.0 2.5 1.8 13.0 13.0 2.8 FY2014 11.0 12.0 24.5 2.5 8.9 10.0 10.0 2.5
Revised estimates FY2013 16.0 16.0 25.0 2.3 1.8 10.0 13.0 3.1 FY2014 11.0 12.0 24.5 2.5 8.9 10.0 10.0 2.8
FY2014 Earlier estimates 6,528 1,863 8,391 3,932 4,459 1,948 2,512 815 1,697 Revised Var. (%) estimates 6,450 1,862 8,313 3,863 4,450 2,098 2,352 763 1,589 (1.2) (0.0) (0.9) (1.7) (0.2) 7.7 (6.3) (6.3) (6.3)
Earlier estimates 5,632 1,711 7,343 3,574 3,769 1,988 1,781 508 1,274
Revised Var. (%) estimates 5,339 1,711 7,050 3,512 3,538 2,173 1,366 389 977 (5.2) (0.0) (4.0) (1.7) (6.1) 9.3 (23.3) (23.3) (23.3)
Oct-06
Oct-07
Oct-08
Oct-09
Oct-10
Oct-11
Oct-12
Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
Apr-11
Apr-12
Source: Company, Angel Research; Note:*Target multiples=SOTP Target Price/ABV (including subsidiaries), #Without adjusting for SASF
Company background
Indian Overseas Bank is a mid-sized PSU bank with a balance sheet size of ~`2.2lakh cr. The bank has a network of 2,000+ domestic branches and over 1,500 ATMs, mainly concentrated in the southern states (~59%), with majority being in the parent state of Tamil Nadu (~38%). The bank has a sizeable presence overseas, with over 12% of its advances coming from overseas branches.
Income statement
Y/E March (` cr) Net Interest Income - YoY Growth (%) Other Income - YoY Growth (%) Operating Income - YoY Growth (%) Operating Expenses - YoY Growth (%) Pre - Provision Profit - YoY Growth (%) Prov. & Cont. - YoY Growth (%) Profit Before Tax - YoY Growth (%) Prov. for Taxation - as a % of PBT PAT - YoY Growth (%) FY09 2,870 7.1 1,713 59.3 4,583 22.0 1,942 30.7 2,641 16.4 687 11.7 1,954 18.1 629 32.2 1,326 10.3 FY10 3,114 8.5 1,197 (30.2) 4,311 (5.9) 2,466 27.0 1,845 (30.2) 866 26.1 979 (49.9) 272 27.8 707 (46.7) FY11 4,208 35.1 1,225 2.4 5,433 26.0 2,573 4.3 2,861 55.1 1,268 46.5 1,592 62.7 520 32.6 1,073 51.7 FY12 5,016 19.2 1,681 37.2 6,697 23.3 3,163 23.0 3,534 23.5 2,236 76.3 1,298 (18.5) 248 19.1 1,050 (2.1) FY13E 5,339 6.4 1,711 1.8 7,050 5.3 3,512 11.0 3,538 0.1 2,173 (2.9) 1,366 5.3 389 28.5 977 (7.0) FY14E 6,450 20.8 1,862 8.9 8,313 17.9 3,863 10.0 4,450 25.8 2,098 (3.5) 2,352 72.2 763 32.4 1,589 62.7
Balance sheet
Y/E March (` cr) Share Capital Reserves & Surplus Deposits - Growth (%) Borrowings Tier 2 Capital Other Liab. & Prov. Total Liabilities Cash Balances Bank Balances Investments Advances - Growth (%) Fixed Assets Other Assets Total Assets - Growth (%) FY09 545 6,606 18.7 6,548 3,946 3,312 5,940 4,981 31,215 74,885 23.9 1,710 2,341 18.9 FY10 545 6,980 10.7 4,111 4,871 3,795 7,666 2,158 37,651 79,004 5.5 1,700 2,918 8.3 FY11 619 8,706 145,229 31.1 12,517 6,838 4,875 178,784 10,011 2,008 48,610 111,833 41.6 1,681 4,641 178,784 36.4 FY12 797 11,131 178,434 22.9 16,812 6,802 5,673 219,648 10,199 6,062 55,566 140,724 25.8 1,744 5,353 219,648 22.9 FY13E 797 11,876 206,984 16.0 19,861 6,632 6,732 252,882 9,314 6,979 65,237 163,240 16.0 1,948 6,163 252,882 15.1 FY14E 797 13,094 231,822 12.0 22,150 6,466 7,692 282,022 9,273 7,784 74,789 181,197 11.0 2,107 6,873 282,022 11.5
100,116 110,795
121,073 131,097
121,073 131,097
Ratio analysis
Y/E March Profitability ratios (%) NIMs Cost to Income Ratio RoA RoE B/S ratios (%) CASA Ratio Credit/Deposit Ratio CAR - Tier I Asset Quality (%) Gross NPAs Net NPAs Slippages Loan Loss Prov./Avg. Assets Provision Coverage Per Share Data (`) EPS ABVPS DPS Valuation Ratios PER (x) P/ABVPS (x) Dividend Yield DuPont Analysis (%) NII (-) Prov. Exp. Adj. NII Treasury Int. Sens. Inc. Other Inc. Op. Inc. Opex PBT Taxes RoA Leverage (x) RoE 2.6 0.6 2.0 0.6 2.5 1.0 3.5 1.7 1.8 0.6 1.2 20.9 24.8 2.5 0.7 1.8 0.2 2.0 0.7 2.7 2.0 0.8 0.2 0.6 20.5 11.5 2.7 0.8 1.9 0.0 1.9 0.8 2.7 1.7 1.0 0.3 0.7 21.4 14.8 2.5 1.1 1.4 0.1 1.5 0.8 2.2 1.6 0.7 0.1 0.5 21.0 11.1 2.3 0.9 1.3 0.0 1.4 0.7 2.1 1.5 0.6 0.2 0.4 21.2 8.8 2.4 0.8 1.6 0.0 1.6 0.7 2.3 1.4 0.9 0.3 0.6 22.0 13.1 2.9 0.7 6.3 5.5 0.7 4.9 4.1 0.6 7.0 5.4 0.5 6.3 5.8 0.5 3.5 3.6 0.5 5.6 24.3 99.5 4.5 13.0 99.8 3.5 17.3 128.7 5.0 13.2 129.9 4.5 12.3 134.7 2.5 19.9 149.1 4.0 2.5 1.3 3.7 0.3 48.0 4.5 2.5 4.1 0.7 54.0 2.7 1.2 2.7 0.7 70.5 2.7 1.4 2.8 0.7 67.7 4.0 1.8 3.1 0.8 66.0 5.1 2.1 2.8 0.7 67.5 30.3 74.8 12.7 7.6 32.5 71.3 14.8 8.7 30.2 77.0 14.6 8.2 26.4 78.9 13.3 8.4 25.0 78.9 12.0 7.7 24.5 78.2 11.4 7.7 2.7 42.4 1.2 24.8 2.6 57.2 0.6 11.5 2.8 47.3 0.7 14.8 2.6 47.2 0.5 11.1 2.3 49.8 0.4 8.8 2.5 46.5 0.6 13.1 FY09 FY10 FY11 FY12 FY13E FY14E
10
E-mail: research@angelbroking.com
Website: www.angelbroking.com
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Ratings (Returns):
11