1. 4FY2010 Result Update I Banking
April 28, 2010
Indian Bank NEUTRAL
CMP Rs216
Performance Highlights Target Price -
Indian Bank reported a Net Profit growth of 4.0% yoy, which was in-line with Investment Period -
our estimates. Large upgrades in restructured accounts, a robust growth in
NII, driven by an improvement in the CD ratio, and a stable CASA were the Stock Info
key positives from the results, though slippages were high. After the recent
Sector Banking
run-up in the stock price, we recommend a Neutral on Indian Bank.
Market Cap (Rs cr) 9,289
CD Ratio improves as Advances grow faster than Deposits: The CD ratio of Beta 1.0
the bank improved sequentially to 73.4%, from 67.8% in 3QFY2010. As a
result, the NII growth of the bank was robust at 7.0% qoq and 39.9% yoy to 52 WK High / Low 225/93
Rs934cr in 4QFY2010. Gross NPAs in absolute terms remained stable Avg. Daily Volume 150989
sequentially at Rs510cr, while the net NPAs increased by 61.6% sequentially to
Rs145cr in 4QFY2010. On the positive side, out of the total restructured Face Value (Rs) 10
assets of Rs5,070cr, the bank upgraded Rs1,831cr of restructured assets BSE Sensex 17,380
during the quarter, as it has received repayments as per the terms during the
first year from the date of restructuring. The management has indicated Nifty 5,212
towards the upgradation of another Rs2,000cr of assets in 1QFY2011E. The Reuters Code INBA.BO
bank recorded a strong CAR of 12.7%, with Tier-I capital of 11.1% (forming
88% of the total CAR). Bloomberg Code INBK@IN
Shareholding Pattern (%)
Outlook and Valuation: The Bank’s performance and strategic direction has
broadly been positive and balanced since its listing, leading to a gradual Promoters 80.0
improvement in the quality of earnings vis-à-vis its peers. Additionally, the
MF/Banks/Indian FIs 4.1
new CMD is expected to be with the bank for a period of five years, providing
a reasonable strategic stability. The bank’s predominantly rural and semi- FII/NRIs/OCBs 12.9
urban presence has enabled it to maintain a reasonable Cost of Funds,
Indian Public 3.0
resulting in more resilient NIMs than other mid-sized PSU banks. However, in
a rising interest rate environment, the NIMs of the bank are not sustainable at Abs (%) 3m 1yr 3yr
the current high levels, in our view, given a relatively lower CASA of 32%.
Moreover, we would remain watchful of asset quality over the next two Sensex 6.6 58.0 25.0
quarters. Since the listing in March 2007, the stock has traded in the range of
0.9-1.2x P/ABV, with an average multiple of 0.9x. At the CMP, the stock is Indian Bank 62.5 115.6 88.5
trading at 5.2x FY2012E EPS of Rs41.1 and 1.0x FY2012E Adjusted Book
Value of Rs214. After the recent run-up in the stock price, we recommend a
Neutral rating on Indian Bank.
Key Financials
Y/E March (Rs cr) FY2009 FY2010 FY2011E FY2012E
NII 2,609 3,304 3,718 4,213
% chg 31.0 26.7 12.5 13.3
Net Profit 1203 1519 1552 1764
% chg 24.1 26.3 2.2 13.7
NIM (%) 3.5 3.7 3.5 3.3 Vaibhav Agrawal
EPS (Rs) 28.0 35.3 36.1 41.1 Tel: 022 – 4040 3800 Ext: 333
E-mail: vaibhav.agrawal@angeltrade.com
P/E (x) 7.7 6.1 6.0 5.2
P/ABV (x) 1.7 1.4 1.2 1.0
Amit Rane
RoA (%) 1.6 1.7 1.4 1.4
Tel: 022 – 4040 3800 Ext: 326
RoE (%) 24.7 25.6 21.9 21.1
E-mail: amitn.rane@angeltrade.com
Source: Company, Angel Research
1
Please refer to important disclosures at the end of this report Sebi Registration No: INB 010996539
2. Indian Bank I 4QFY2010 Result Update
Exhibit 1: 4QFY2010 Performance
Y/E March (Rs cr) 4QFY10 3QFY10 % chg (qoq) 4QFY09 % chg (yoy) FY10 FY09 % chg
Interest Earned 2,025 2,015 0.5 1856 9.1 7,857 6,830 15.0
Interest Expenses 1,091 1,142 (4.5) 1189 (8.2) 4,553 4,222 7.8
Net Interest Income 934 873 7.0 668 39.9 3,304 2,609 26.7
Non-Interest Income 293 294 (0.2) 292 0.3 1,174 1,035 13.4
Total Income 1,227 1,166 5.2 960 27.9 4,478 3,644 22.9
Operating Expenses 355 476 (25.5) 324 9.5 1,730 1,415 22.3
Pre-Prov Profit 872 691 26.3 636 37.2 2,747 2,229 23.3
Provisions & Cont. 214 32 566.5 24 778.1 396 443 (10.7)
PBT 659 659 0.0 611 7.7 2,352 1,786 31.7
Prov. for Taxes 249 217 14.5 217 14.5 797 540 47.4
PAT 410 441 (7.1) 394 4.0 1,555 1,245 24.9
EPS (Rs) 4.9 5.3 (7.1) 4.7 4.0 18.7 15.0 24.9
Cost to Income (%) 28.9 40.8 33.8 38.6 38.8
Effective Tax Rate (%) 37.8 33.0 35.5 33.9 30.3
Net NPA (%) 0.2 0.2 0.2 0.2 0.2
Source: Company, Angel Research
CD Ratio improves as Advances grow faster than Deposits
The total business of the bank registered a growth of 19.3% yoy to Rs1,47,964cr,
driven by advances and deposits growth of 21.7% yoy and 17.5% yoy, respectively.
The CD ratio of the bank improved sequentially to 73.4% from 67.8% in 3QFY2010.
As a result, the NII growth of the bank was robust at 7.0% qoq and 39.9% yoy to
Rs934cr in 4QFY2010. The growth in advances was driven by SME Loans (49.3%
yoy) and Corporate Loans (22.8%), which constituted 13.1% and 50.7% of the total
loan book, respectively, at the end of FY2010.
Exhibit 2: Composition of Advances
Composition as %
Sector (Rs cr) 4QFY09 4QFY10 Growth
of total
Agriculture 7,838 9,144 16.7 14.6
SME 5,489 8,193 49.3 13.1
Corporate 25,870 31,770 22.8 50.7
Retail & Others 12,634 13,551 7.3 21.6
Total 51,831 62,658 20.9 100.0
Source: Company, Angel Research
Flat Non-interest Income Growth
The key positive from the 4QFY2010 results was extraordinary recoveries from bad
debts at Rs90cr, up 97.6%, from Rs46cr in 4QFY2009. However, due to an absence
of treasury gains, the overall non-interest income growth remained flat. The core
non-interest income grew by 12.3% qoq and 3.5% yoy to Rs195cr in 4QFY2010. We
expect the growth in core non-interest income to be largely in-line with the advances
growth, going forward.
Exhibit 3: Non-Interest Income
Period (Rs cr) 4QFY09 4QFY10 % Change
Recovery of Bad Debts 46 90 97.6
Profit on Sale of Investments 58 7 -87.1
Core Non-Interest Income 189 195 3.5
Total Non-Interest Income 292 293 0.3
Source: Company, Angel Research
April 28, 2010 2
3. Indian Bank I 4QFY2010 Result Update
Restrctured A/cs performing well, though high slippages
The Gross and Net NPA ratios of the bank remained stable at 0.8% and 0.2%,
respectively, with the NPA provision coverage ratio at 72% (which was 93%,
including technical write-offs). Gross NPAs in absolute terms remained stable
sequentially at Rs510cr, while the net NPAs increased by 61.6% sequentially to
Rs145cr in 4QFY2010. On the positive side, out of the total restructured assets of
Rs5,070cr, the bank upgraded Rs1,831cr of restructured assets during the quarter,
as it has received repayments as per the terms during the first year from the date of
restructuring. The management has indicated towards the upgradation of another
Rs2,000cr of assets in 1QFY2011E. However, asset quality concerns remain, as the
bank witnessed slippages of Rs573cr in FY2010 (Rs230cr in FY2009), out of which
Rs387cr worth of assets slipped during 4QFY2010. The restructured assets still form
41.5% of the networth of the bank.
Exhibit 4: Trends in Asset Quality
1.60 90
1.40 80
1.20 70
60
1.00
(%)
50
(%)
0.80
40
0.60
30
0.40 20
0.20 10
- -
3QFY2008
4QFY2008
1QFY2009
2QFY2009
3QFY2009
4QFY2009
1QFY2010
2QFY2010
3QFY2010
4QFY2010
NPA Coverage (RHS) Gross NPA (LHS Net NPA (LHS)
Source: Company, Angel Research
Operating costs under control
The total operating costs increased by 9.5% yoy and declined by 25.5% sequentially,
to Rs355cr, due to a high base in 3QFY2010. As the growth in operating income
(27.9% yoy) exceeded the growth in operating costs, the cost-to-income ratio of the
bank improved to 28.9% (40.8% in 3QFY2010 and 33.8% in 4QFY2009). The Bank
opened 54 branches (116 during FY2010) and 150 ATMs (250 during FY2010)
during 4QFY2010. Additionally, the bank is planning to open 190 branches in
FY2011E, which should take the branch total to 1,950.
Healthy Capital Adequacy
The bank recorded a strong CAR of 12.7%, with Tier-I capital of 11.1% (forming
88% of the total CAR). The bank has adequate headroom to raise additional Tier-II
capital, going forward, in order to grow above the industry growth rate.
April 28, 2010 3
4. Indian Bank I 4QFY2010 Result Update
Outlook and Valuation
The Bank’s performance and strategic direction has broadly been positive and
balanced since its listing, leading to a gradual improvement in the quality of
earnings vis-à-vis its peers. Additionally, the new CMD is expected to be with the
bank for a period of five years, providing a reasonable strategic stability. The bank’s
predominantly rural and semi-urban presence has enabled it to maintain a
reasonable Cost of Funds, resulting in more resilient NIMs than other mid-sized PSU
banks. However, in a rising interest rate environment, the NIMs of the bank are not
sustainable at the current high levels, in our view, given a relatively lower CASA of
32%. Moreover, we would remain watchful of asset quality over the next two
quarters. Since the listing in March 2007, the stock has traded in the range of
0.9-1.2x P/ABV, with an average multiple of 0.9x. At the CMP, the stock is trading at
5.2x FY2012E EPS of Rs41.1 and 1.0x FY2012E Adjusted Book Value of Rs214. After
the recent run-up in the stock price, we recommend a Neutral rating on Indian Bank.
Exhibit 5: P/ABV Band – Indian Bank
350
300
250
200
(Rs)
150
100
50
0
Mar-07
May-07
Feb-08
Oct-07
Jan-08
Mar-08
May-08
Oct-08
Jan-09
Feb-09
Mar-09
May-09
Oct-09
Jan-10
Feb-10
Mar-10
Apr-07
Aug-07
Nov-07
Apr-08
Aug-08
Nov-08
Apr-09
Aug-09
Nov-09
Apr-10
Jun-07
Jul-07
Sep-07
Dec-07
Jun-08
Jul-08
Sep-08
Dec-08
Jun-09
Jul-09
Sep-09
Dec-09
Price 0.5x 0.8x 1.1x 1.4x 1.7x
Source: Company, Angel Research
April 28, 2010 4
6. Indian Bank I 4QFY2010 Result Update
Research Team Tel: 022-4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com
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Disclosure of Interest Statement Indian Bank
1. Analyst ownership of the stock No
2. Angel and its Group companies ownership of the stock No
3. Angel and its Group companies’ Directors ownership of the stock No
4. Broking relationship with company covered No
Note: We have not considered any Exposure below Rs 1 lakh for Angel and its Group companies.
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April 28, 2010 6
