Stock Market Result Update on Syndicate Bank for 1QFY2012

Stock Market Result Update on Syndicate Bank for 1QFY2012 with an Accumulate recommendation and a Target Price of `131 (12 months).

For 1QFY2012, Syndicate Bank reported a strong set of numbers, with net profit increasing by robust 18.5% qoq (up by 29.2% yoy), in-line with our estimates.

A significant decline in slippages and a marginal improvement in CASA ratio were the key positives of the result. We recommend an Accumulate rating on the stock.

Healthy business growth with stable asset quality: The bank’s advances grew by 2.0% qoq (up 15.8% yoy) to `108,928cr, while deposits declined by 2.0% qoq (up by strong 22.4% yoy) to `132,889cr. CASA deposits declined sequentially by 1.4% qoq to `41,346cr, primarily due to an 8.4% qoq decrease in current account deposits. The effect of rising interest rates was felt in 1QFY2012, with cost of deposits increasing by 56bp to 6.4%. Reported NIM witnessed a decline of 27bp qoq to 3.2%, partly compensated by the 34bp qoq rise in yield on advances to 10.2%. For 1QFY2012, CEB income grew by 28.7% yoy to `130cr, while treasury income witnessed a robust increase of 190.0% yoy to `58cr. Slippages declined considerably to `350cr during 1QFY2012 (slippage ratio of 1.3%) compared to `542cr in 4QFY2011 (slippage ratio of 2.4%). NPA ratio was stable sequentially, with gross NPA ratio at 2.4% (2.4% in 4QFY2011) and net NPA ratio at 0.9% (1.0% in 4QFY2011). Until now, the bank has only switched over accounts worth `25lakh and above to system-based NPA recognition.

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 0.94x. Keeping in mind the bank’s stable asset quality and moderate NIM, the valuation appears cheap relative to its peers. We value the stock at 0.9x FY2013E ABV and, hence, recommend Accumulate with a target price of `131.