Result Update on Bank of Maharashtra for 1QFY2012

For 1QFY2012, Bank of Maharashtra posted moderate net profit growth of 3.0% yoy to `122cr due to a considerable rise in provisioning burden on account of the increase in regulatory requirements. Sequential improvement in NIM, robust growth in fee income and overall improvement in asset quality were the key positive takeaways from the results. We recommend Buy on the stock.

NIM surprises positively; robust fee income growth and improving asset quality: During 1QFY2012, business growth for the bank moderated in-line with peers. Advances grew marginally by 0.3% qoq and deposits increased by 1.8% qoq. Growth in SME advances was robust at 94.2% yoy (6.4% qoq), leading to an increase in its share in the loan book to 15.9% from 9.1% as of 1QFY2011. CASA deposits growth was slightly better at 15.9% yoy, with saving account deposits rising by 17.6% yoy. On account of reasonable growth in CASA deposits, the bank was able to improve its CASA ratio albeit marginally to 40.6%. The bank surprised positively by reporting a 5bp sequential increase in reported NIM (to 3.18%) as compared to peers who witnessed a 25–50bp qoq compression in NIM. The run-down of low-yielding corporate loans of ~`3,000cr and reduction in share of bulk deposits aided in improving the margins to an extent. Fee income growth was strong at 86.6% yoy due to revision in fees and charges and some chunky transactions. Gross slippages came off from the high levels of 2.3% in 1QFY2011 and 2.2% in 4QFY2011 to 1.6% in 1QFY2012. The bank had in FY2011 itself implemented the system-based NPA recognition system.

Outlook and valuation: We expect the bank to deliver a healthy 30.5% earnings CAGR over FY2011–13E on the back of largely stable NIMs, pick-up in fee income and improvement in asset quality. 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 1.0x. We recommend Buy on the stockwith a target price of `65, implying an upside of 19.8% from current levels.