Dear All,
Forwarding you the Result Flash on Indian Overseas Bank for 4QFY2011 with an Accumulate recommendation.
Indian Overseas Bank (IOB) announced its 4QFY2011 results today, registering a robust net profit growth of 240.5% yoy (up by 87.5% qoq) to Rs434cr, substantially above our as well as the streets estimates, on account of higher Non-interest income and lower operating expenses than factored in by us.
Key highlights:
· Business growth momentum was strong with advances and deposits growth of 11.7% qoq and 16.1% qoq, respectively. On a yoy basis, advances and deposits grew by 38.4% and 31.1%, respectively.
· NII grew by a strong 48.1% yoy (up 7.5% qoq) to Rs1,215cr. The NIM for FY2011 stood at 3.1% compared to 2.74% for FY2010. Non-interest income growth was also strong, registering a growth of 36.4% yoy (up 9.5% qoq).
· Operating expenses declined by 3.7% yoy and 8.0% qoq to Rs623cr on account of a 16.2% yoy and 25.0% qoq decrease in employee expenses. During FY2011, the bank made provision of Rs152cr (1/5th of total liability of Rs759cr) towards liability arising out of second pension option for serving employees and Rs49cr (1/5th of total liability of Rs247cr) for additional gratuity fund requirement. The bank took a hit of ~Rs152cr for retired employee pension expenses during 4QFY2011. The total outstanding pension for the bank at the end of 4QFY2011 stands at Rs607cr, while the outstanding unamortized gratuity fund liability stands at Rs197cr. Due to decline in operating expenses and strong growth in operating income, the cost-to-income ratio of the bank increased to 38.9% from 45.7% in 3QFY2011.
· The asset quality of the bank improved significantly during 4QFY2011 with the absolute Gross NPAs declining by 5.4% qoq and Net NPAs declining by 10.7% qoq. Gross NPA ratio declined sequentially by 54bps to 2.7%, while net NPA ratio declined sequentially by 32bps to 1.2%. The provision coverage ratio stood at 70.5% (65.4% in 3QFY2011) including technical write-offs. Provisioning expenses were slightly lower, declining by 3.0% yoy (up 24.5% qoq).
At the CMP, the stock is trading at 0.9x FY2013E ABV. We recommend an Accumulate rating on the stock. We may revise our estimates post interaction with the management.
| Exhibit 1: 4QFY2011 Actual vs. Estimates | |||
| (Rs cr) | Actual | Estimates | Var (%) |
| Net interest income | 1,215 | 1,152 | 5.5 |
| Non-interest income | 384 | 321 | 19.7 |
| Operating income | 1,600 | 1,473 | 8.6 |
| Operating expenses | 623 | 727 | (14.3) |
| Pre-prov. profit | 977 | 746 | 31.0 |
| Provisions & contingencies | 446 | 445 | 0.3 |
| PBT | 531 | 301 | 76.3 |
| Prov. for taxes | 97 | 54 | 79.7 |
| PAT | 434 | 247 | 75.6 |
Source: Company, Angel Research
Exhibit 2: 4QFY2011 Performance summary
| (Rs cr) | 4QFY2011 | 3QFY2011 | % chg (qoq) | 4QFY2010 | % chg (yoy) |
| Interest earned | 3,532 | 3,102 | 13.9 | 2,548 | 38.6 |
| Interest expenses | 2,317 | 1,971 | 17.5 | 1,727 | 34.1 |
| Net interest income | 1,215 | 1,130 | 7.5 | 821 | 48.1 |
| Non-interest income | 384 | 351 | 9.5 | 282 | 36.4 |
| Operating income | 1,600 | 1,481 | 8.0 | 1,102 | 45.1 |
| Operating expenses | 623 | 677 | (8.0) | 647 | (3.7) |
| Pre-prov. profit | 977 | 804 | 21.5 | 456 | 114.4 |
| Provisions & contingencies | 446 | 358 | 24.5 | 460 | (3.0) |
| PBT | 531 | 446 | 19.1 | -4 | NA |
| Prov. for taxes | 97 | 214 | (54.9) | -132 | NA |
| PAT | 434 | 232 | 87.5 | 128 | 240.5 |
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