For 4QFY2011, Vijaya Bank posted disappointing set of numbers with net profit de-growing by 58.3% yoy and 64.3% qoq to `54cr. Asset quality concerns persisted during the year, while the pension expenses led to higher employee costs which resulted into lower ROA for FY2011. We recommend a Reduce rating on the stock.
Below industry advances growth and higher slippages: For 4QFY2011, the bank’s advances grew by a moderate 17.3% yoy (compared to industry credit growth of 21.4% yoy) to `48,719cr, while deposits grew by 18.3% yoy which was above industry growth of 15.8% yoy. CASA deposits grew by healthy 21.3% yoy driven by 24.3% yoy and 14.2% yoy growth in savings account and current account deposits, respectively. CASA ratio at the end of 4QFY2011 stood at moderate 25.3%.The reported NIM of the bank decreased by 62bp qoq to 2.8% on account of rise in cost of funds. During FY2011, the bank witnessed asset quality concerns with slippages considerably high at `1,362cr. Consequently the annual slippage ratio stood at 3.3% in FY2011 (3.4% in FY2010). Gross NPA ratio and net NPA ratio stood at 2.6% and 1.5% in FY2011 compared to 2.4% and 1.4% in FY2010, respectively. As of 4QFY2011, the provision-to-coverage ratio (PCR) including technical write-offs stood at 63.7%.
Outlook and valuation: During FY2011 bank’s asset quality concerns persisted with very high slippages. However, bank expects substantial recoveries in FY2012 which we have factored in our estimates. In spite of this, ROA is likely to remain at ~0.5% in FY2012. Currently the stock is trading at 1.0x of FY2013E ABV, which is relatively expensive than its peers. We have valued the bank at 0.9x FY2013E ABV with the target price of `71 and hence we recommend a Reduce rating on the stock.
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