Accumulate Syndicate Bank - 3QFY2012 Result Update - Angel Broking

For 3QFY2012, Syndicate Bank reported 32% yoy growth in its net profit to Rs.338cr, ahead of our estimates, primarily on account of lower-than-estimated effective tax rate. On the PBT front, results were ~18% below our estimates due to higher-than-expected provisioning expenses. Muted business growth while maintaining NIMs and stabilization of asset-quality pressures was the key highlight of the results. We recommend an Accumulate rating on the stock.

NIMs stable sequentially; asset-quality pressures subside: During the quarter, business growth for the bank moderated a bit. The bank's advances grew by muted 2.0% qoq (up 14.9% yoy) and deposits increased by muted 1.4% qoq (up 14.9% yoy). CASA deposits growth remained sluggish at 6.6% yoy (just 2.2% qoq), leading to a 237bp yoy dip in CASA ratio to 30.8%. However, on a sequential basis, CASA ratio improved albeit marginally by 22bp to 30.8% on the back of a 5% qoq increase in current account deposits. The 22bp qoq rise in cost of deposits was largely offset by almost similar increase in yield on advances, leading to sequentially stable NIM for the quarter at 3.45%. On the asset-quality front, pressures for the bank subsided with slippages declining to Rs.550cr (1.9%) from the elevated Rs.971cr (3.6%) witnessed in 2QFY2012. The bank had strong upgradations (of ~Rs.350cr), which aided in registering a sequential decline in gross and net NPAs on an absolute basis. Provision coverage ratio, including technical write-offs, remained healthy at 78.5%.

Outlook and valuation: The stock is currently trading (at 0.6x FY2013E ABV) near its five-year range of 0.7–1.3x and median of 0.9x. Keeping in mind the bank's stable asset quality, moderate growth strategy over the past couple of years and moderate NIM, the valuation appears cheap relative to its peers (which are trading at higher multiples, although they have similar or poorer fundamentals). We value the stock at 0.7x FY2013E ABV and recommend an Accumulate rating with a target price of Rs.99.

Source : Equity Bulls

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