RESEARCH IDBI Bank Ltd. ACCUMULATE Key Indicators as on 15/01/2015 SOURCE:CMIE Closing Price (Rs.) 76.00 EPS (Rs.) - TTM 5.28 P/E - TTM 14.39 BV per Share (Rs.) 138.10 PB 0.55 Yield% 1.32 Mkt Cap (Rs. Crore) 12190.08 Advances as on Sept-14 (Rs. Crore) 195057 Deposits as on Sept-14 (Rs. Crore) 238006 Beta 1.69 NIM% as on Sept 2014 1.93 NPA% as on Sept 2014 2.79 ROA% as on Sept 2014 0.15 CASA% as on Sept 2014 22.03 Face Value 10 Shares Outstanding crores 160.40 Equity Share capital in ` Crores 1603.94 Share holding (%) Dec-2014 Promoters 76.50 Public 7.89 FIIs 2.90 Others 12.71 Quarterly chart since 1999 Investment Highlights: Available at a discount to its adjusted book value offering huge margin of safety Restructured Assets doesn t seem large considering the following :- Net Interest Income Consistent Commission Likely Interest Rate cut in the future Conservative lending approach during sluggish period will help IDBI perform better going forward Management plans of branch expansion likely to increase CASA% as CASA per branch highest amongst its peers Other Positives Provision Coverage ratio better than its peers Stable Net NPA ratio as compared to its peers Trading below its 10 years average Adj. PB of 1.08 Some of the negatives Lowest NIM among its peers Low CASA% Ratio ROA & ROE low as compared to peers Pg. 1
Investment Rationale: Available at a discount to its adjusted book value offering huge margin of safety Subtracting NPA per share and adjusting current value of investment which gives net book value of Rs. 116.7 per share (PB 0.65) Particulars Rs. per Share Book Value 140 Book Value of Investment -20 Market value of Investment 36.7 NPA per share -40 Net Book value 116.7 Name of Company Valuation Method Holding Percentage % Market Value (Cr) IDBI Assets Management Ltd 5% AUM 65 220 IDBI Capital Market Service ltd Book Value 100 314 IDBI Federal Life Insurance company PB of 2.5 48 959 Small industries development bank of India PB of 1 19.21 1728 National securities depository limited As per CDSL Valuations 30 360 Asset reconstruction company (India) limited PB of 1 19.18 284 Credit analysis and research limited 16.62 680 STCI finance limited PB of 1 6.6 64 National stock exchange of India limited 5 1200 Clearing Corporation of India Book Value 7.5 75 Total 5884 (Note: - We have given low valuation of PB 1 for SIDBI, ARCIL & STCI Finance). These businesses can also be given a P/B multiple of 2 times. If valued so, then the Net Book Value rises by Rs. 13 per share. Pg. 2
Restructured Assets doesn t seem large considering the following :- 1. NII 2. Commission 3. Interest rate cuts in the next 4-6 quarters The Restructured Assets of Rs.16905 cr as on Sept 2014 does not seem too large considering the following factors :- 1. FY 2014 NII of Rs. 6000 crores 2. FY 2014 Commission of Rs. 1962 crores 3. 1% fall in Interest rate likely to get the benefit of Rs.2000-3000 crores approximately. (Note : Restructured loans are directly linked to the Indian Economy) 7,000.00 6,000.00 5,000.00 4,000.00 3,000.00 2,000.00 1,000.00 0.00 Net Interest Income(Cr) FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 2,385.97 4,346.29 4,570.99 5,401.56 6,049.99 NIM (%) 1.27 2.1 2.02 2.12 2.17 2.5 2 1.5 1 0.5 0 (Rs. in crore) Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Commission, exchange and brokerage 1225 1551 1530 2344 1962 Category (Rs. in crore) Sept 2014 HTM AFS HFT Total Government securities 54909 13942 1456 70307 SASF Securities 4691 0 0 4691 Shares (Equity) 0 2441 31 2472 Shares (Preference) 0 428 0 428 Debentures/ Bonds 0 11156 0 11156 Subsidiaries / Joint Ventures 644 0 0 644 Security Receipts 0 534 0 534 Others (CPs/CDs/MF) etc 18081 96 394 18572 Total Investments 78325 28597 1880 108803 Pg. 3
Pie chart of Restructured Assets as on Sept 2014 Others, 24% Infrastructure, 27% Hotel, 3% Iron and Steel, 3% Ship Building, 3% Telecommunic ations, 4% Air Transport, 3% Metal Industry, 8% Textiles, 4% Electricity Generation, 14% Electrical Machinery, 8% Conservative lending approach during sluggish period will help IDBI perform better going forward You may note from the below table, IDBI Bank tends to grow better with increase in GDP & becomes conservative during bad times. The Advances of IDBI Bank from FY 04-10 have grown at 19% as compared to 7% for the period FY 10-14. Advances Mar 04 Mar 05 Mar 06 Mar 07 Mar 08 Mar 09 Mar 10 CAGR IDBI Bank 42206 46327 54104 64367 83684 104591 140509 18.7% Allahabad Bank 15345 21151 29148 41290 49721 58802 71608 24.6% IOB 20295 25205 34756 47060 60402 74885 79004 21.4% Corporation Bank 13994 18634 24000 29950 39186 48512 63203 24.0% Union Bank 29426 40105 53380 62386 74267 96534 119315 22.1% (Source : Prowess) Pg. 4
Advances Mar 10 Mar 11 Mar 12 Mar 13 Mar 14 CAGR IDBI Bank 140509 157098 180572 196307 197686 7.1% Allahabad Bank 71608 93628 111146 129490 138008 14.0% IOB 79004 111833 140725 160364 175888 17.4% Corporation Bank 63203 86850 100469 118717 137086 16.7% Union Bank 119315 150986 177882 208102 229104 13.9% (Source : Prowess) Branch expansion likely to increase CASA% Focus of management to increase the number of branches along with increasing the retail deposits contribution will help improve the CASA ratio. The Management has set a target to open 600 more branches in FY 15. No. Mar 09 Mar 10 Mar 11 Mar 12 Mar 13 Mar 14 Sep 14 Branches 537 708 816 973 1077 1388 1488 ATMs 914 1201 1372 1542 1702 2301 2727 CASA per Branch highest amongst its peers CASA per Branch(Rs. in cr) Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 IDBI Bank 31 35 46 52 53 38 IOB 16 18 20 18 18 18 Corporation Bank 22 23 22 20 21 19 Union Bank 16 19 21 22 23 23 Allahabad Bank 13 16 18 19 20 21 Branch expansion will help to increase CASA Low CASA amongst its peers 40.0 CASA% Sept 2014 20.0 0.0 Union Bank Of India Indian Overseas Bank Allahabad Bank I D B I Bank Ltd. Corporation Bank Pg. 5
OTHER POSITIVES Provision Coverage Ratio better than its peers 70 60 50 40 30 20 10 0 PCR(%) Sept 2014 Stable Net NPA ratio as compared to its peers 10000.0 8000.0 6000.0 4000.0 2000.0 0.0 As on Sept 2014 6.00 4.00 2.00 0.00 N.NPAs (Cr) Net NPA (%) Trading below its 10 years average Adj. PB of 1.08 2.50 2.00 1.50 1.00 0.50 0.00 Adj PB 4 3 2 1 0 NPA% Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12 Dec 13 Dec 04 Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12 Dec 13 (Note :- Adjusted PB Book Value per share Less NPA per share)(source : Prowess) Pg. 6
Some of the Negatives Lowest NIM amongst its peers 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 NIM (%) Sept 2014 (Note: - This is mainly because major portion of deposits includes term deposits which lead to increase in cost of fund and also current deposits have not increased significantly) As on Sept 2014 ROA & ROE low as compared to peers 12 10 8 6 4 2 0 Allahabad Cor Bank IOB Union Bank of India IDBI 0.6 0.5 0.4 0.3 0.2 0.1 0 ROE ROA Pg. 7
Company Profile: IDBI Ltd the principal financial conglomerate was incorporated under an Act of Parliament in 1964 as a wholly owned subsidiary of Reserve Bank of India, for monitoring and coordinating the activities of financial institutions at national and state levels. In 1994 IDBI instituted IDBI Bank Ltd. as an independent commercial bank subsidiary. But in 2005 IDBI Bank Ltd again merged with IDBI as a scheme of amalgamation. IDBI Bank started working as a commercial bank on 1 st October 2004. It provides services like Retail Banking, Corporate Banking, Agri Business & Microfinance & SME Banking. The Bank's distribution network comprises of 1,488 Branches and 2,727 ATMs as on Sept 2014. The Bank has initiated the process for setting up branch offices at Singapore and representative office at Shanghai. 19% Advances 0% 8% 25% Advances Infrastructure lending Deposits Demand deposits 11% Saving deposits 12% 48% Cor Banking grp Retail banking grp Term deposits 77% Quarterly Results (Standalone) (Rs. Crore) June 2013 Sept 2013 Dec 2013 Mar 2014 June 2014 Sept 2014 Total Income 7,445.42 7,114.44 7,149.88 7,866.52 7,232.73 7,610.52 Income from operations 6,728.39 6,535.71 6,617.82 6,715.59 6,732.98 6,850.12 Other Income 717.03 578.73 532.06 1,150.93 499.75 760.4 Total Expenses 7,138.47 6,922.17 7,045.92 7,348.29 7,126.56 7,492.03 Salary 490.06 360.49 315.8 358.39 395.47 497.31 Total other expenses 385.39 427.01 465.18 516.52 426.93 472.38 Interest expenses 5,253.35 5,052.11 5,129.44 5,141.13 5,482.07 5,443.95 PBPT 1,316.62 1,274.83 1,239.46 1,850.48 928.26 1,196.88 Provisions & contingencies 829.67 878.72 1,033.36 1,198.50 776.16 990.47 PBT 486.95 396.11 206.1 651.98 152.1 206.41 Corporate Tax 180 203.84 102.14 133.75 45.93 87.92 PAT 306.95 192.27 103.96 518.23 106.17 118.49 Pg. 8
From NAYAN M. VALA SECURITIES PVT.LTD.RESEARCH Analyst Certification We /I, Maulik Shah, MBA, Ashwini Sonawane, MMS, Research Analysts, authors and the names subscribed to this report; hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Disclaimers and Disclosures-: Nayan M Vala Securities Pvt. Ltd. (CIN- U67120MH2005PTC152929) is a Broking Firm and a 1st batch member of The National Stock Exchange of India Ltd. (NSE) since 1994. Nayan M Vala Securities Pvt. Ltd. is a corporate trading member of Bombay Stock Exchange Limited (BSE), National Stock Exchange of India Limited (NSE), MCX Stock Exchange Limited (MCX-SX). Nayan M Vala Securities Pvt. Ltd. is engaged in the business of stock broking (Institutional and retail) and depository participant. Nayan M Vala Securities Pvt. Ltd. is under the process of seeking registration under SEBI (Research Analysts) Regulations, 2014. NAYAN M VALA SECURITIES PVT. LTD. hereby declares that it has not defaulted with any stock exchange nor its activities were suspended by any stock exchange with whom it is registered in last five years. NAYAN M VALA SECURITIES PVT. LTD. has not been debarred from doing business by any Stock Exchange / SEBI or any other authorities; nor has its certificate of registration been cancelled by SEBI at any point of time. NAYAN M VALA SECURITIES PVT. LTD. offers research services to clients as well as prospects. The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report. Other disclosures by Nayan M Vala Securities Pvt. Ltd. (Research Entity) and its Research Analyst under SEBI (Research Analyst) Regulations, 2014 with reference to the subject company(s) covered in this report-: This document has been prepared by the Research Division of NAYAN M VALA SECURITIES PVT. LTD. and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of NAYAN M VALA SECURITIES PVT. LTD. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, NAYAN M VALA SECURITIES PVT. LTD. has not independently verified the accuracy or completeness of the same. Neither NAYAN M VALA SECURITIES PVT. LTD. nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor. NAYAN M VALA SECURITIES PVT. LTD. or its associates may have financial interest in the subject company. Research Analyst or his/her relative s financial interest in the subject company - NO NAYAN M VALA SECURITIES PVT. LTD. or its associates and Research Analyst or his/her relative s does not have any material conflict of interest in the subject company. The Research Analyst or (NAYAN M VALA SECURITIES PVT. LTD.) have not been engaged in market making activity for the subject company. NAYAN M VALA SECURITIES PVT. LTD. or its associates does not have actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of Research Report. Research Analyst or his/her relatives have actual/beneficial ownership of 1% or more securities of the subject company at the Pg. 9
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