Dear All,
Forwarding you the Result Update on Syndicate Bank for 4QFY2011 with a Buy recommendation and a Target Price of `142 (12 months).
For 4QFY2011, Syndicate Bank reported a moderate set of numbers, with NII increasing marginally by 1.0% qoq (up by 35.1% yoy) and NIM declining by 15bp qoq to 3.7%. The key positive of the result was stable asset quality. We recommend a Buy rating on the stock.
Healthy business growth with stable asset quality: The bank’s business growth was strong sequentially, with a 6.9% qoq increase in advances and an 8.8% qoq increase in deposits. However, CASA growth was muted at 1.6% qoq, leading to a 219bp dip in CASA ratio to 30.9%. The effect of rising interest rates was felt in 4QFY2011, with cost of deposits increasing by 36bp to 5.8%. Reported NIM witnessed a decline of 15bp qoq to 3.4%, partly compensated by the 28bp qoq rise in yield on advances to 9.9%. The asset quality was stable sequentially with gross NPA ratio at 2.4% (2.3% in 3QFY2011) and net NPA ratio at 1.0% (1.0% in 3QFY2011). Provision coverage ratio including technical write-offs stood at 77.2% (73.3% in 3QFY2011). During FY2011, other income excluding treasury managed to grow by 13.0% yoy to `880cr. Pension (for serving employees) and gratuity costs for the year led to 32.6% yoy growth in employee expenses for FY2011. The bank took a hit of ~`364cr for retired employee pension expenses during 4QFY2011. The bank’s total outstanding pension and gratuity expenses at the end of 4QFY2011 stands at `582cr.
Outlook and valuation: At the CMP, the stock is trading at 0.8x FY2013E ABV compared to its five-year range of 0.7x–1.3x one-year forward ABV with a median of 0.95x. Keeping in mind the bank’s stable asset quality and moderate NIMs, the valuation appears cheap relative to its peers. We value the stock at 1.0x FY2013E ABV and, hence, recommend Buy with a target price of `142.
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If you have any further queries, feel free to call us on 022 39357600, Extn: 6865 or mail us at advisory@angelbroking.com
With best regards,
Fundamental Advisory Desk
Angel Broking
Akruti Star,6th Floor, Road No.7,MIDC, Andheri (E),Mumbai – 93.
Call : (91) (022) 39357600 Ext. 6865
Website : www.angelbroking.com
Disclaimer: Ours is an advisory role. The final decision and consequences based on our information is solely yours. Moreover, in keeping with regulatory guidelines, we do not guarantee any returns on investments. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice.
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