Buy Bank of Maharashtra - 3QFY2012 Result Update - Angel Broking

For 3QFY2012, Bank of Maharashtra reported a strong performance with a healthy 50.2% yoy growth in its net profit to Rs.136cr, slightly lower than our estimate on account of higher tax provisioning (37% effective tax rate). On PBT basis, the reported figure of Rs.215cr was in line with our estimates (Rs.216cr). We recommend a Buy on the stock.

Strong performance on operating front: During 3QFY2012, advances for the bank de-grew by 0.3% qoq (up by 14.0% yoy), while deposit growth was also muted at 0.8% qoq (up by 11.4% yoy). CASA deposits growth at 1.5% qoq (13.6% yoy) was relatively higher compared to the overall deposit growth (saving account deposits rising by 2.1% qoq (12.2% yoy)), leading to CASA ratio for the bank improving sequentially by 29bp to 41.0%. The bank shed around ~Rs.2,000cr of high cost bulk deposits during 3QFY2012, due to which the cost of funds for the bank increased by a relatively lower 11bp qoq compared to 24bp qoq increase in the yield on advances. Consequently the reported NIMs witnessed a marginal improvement of 4bp qoq to 3.3%. The bank's fee income witnessed healthy traction during 3QFY2012, growing by a healthy 25.2% yoy to Rs.101cr. The bank's asset quality remained healthy during 3QFY2012 with both absolute Gross and Net NPAs declining by 4% sequentially. While the gross NPAs improved from 2.15% to 2.06%, the net NPA ratio improved from 0.57% to 0.54%. The provision coverage ratio for 3QFY2012 continued to be high at 87.0%. The bank restructured ~Rs.1,100cr of loans to the Rajasthan and Haryana SEBs during 3QFY2012, taking the outstanding restructured advances to Rs.3,100cr (~8% of the overall loan book). The SEBs of UP and Gujarat have also approached the bank for restructuring and ~Rs.700cr of advances pertaining to these utilities are expected to be restructured during 4QFY2012.

Outlook and valuation: At the CMP, the stock is trading at attractive valuations, in our view, of 0.7x FY2013E ABV vs. its five-year range of 0.6–1.2x and median of 0.9x. On the back of high NIM, moderate fee income and relatively better asset quality than peers, we expect the bank to deliver healthy 26.3% earnings CAGR over FY2011–13E. We value the stock at 0.8x and hence recommend a Buy rating with a target price of Rs.53 implying an upside of 16.4%.

Source : Equity Bulls

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