Stock Market Result Update on UCO Bank for 1QFY2012

Stock Market Result Update on UCO Bank for 1QFY2012 with a Neutral recommendation.

For 1QFY2012, UCO Bank posted a healthy performance with net profit rising by 29.5% qoq and 12.4% yoy to `293cr, above our estimates, due to lower operating expenses and tax expenses than built in by us. The bank shed ~`18,000cr worth of bulk deposits during 1QFY2012. Lower slippages compared to 4QFY2011 and rise in reported NIM by 11bp qoq were the key highlights of the results. We maintain our Neutral recommendation on the stock.

Bank sheds low-cost deposits during 1QFY2012; NIM shows a marginal increase: During 1QFY2012, advances fell by 3.0% qoq (up 17.5% yoy) to `96,092cr, while deposits dipped by 12.2% qoq (up 7.3% yoy) to `127,534cr, led by shedding of `18,000cr of bulk deposits during the quarter. On the deposits side, CASA deposits grew by 12.9% yoy. On a sequential basis, CASA deposits fell by 2.6%; however, due to a much higher decline in overall deposits, CASA ratio increased by 97bp qoq to 24.2% in 1QFY2012. The effect of rising interest rates was felt in 1QFY2012, with cost of deposits increasing by 90bp qoq to 7.2%. However, yield on advances grew by 101bp qoq to 10.9%, leading to a sequential increase of 11bp in reported NIM to 2.5%. Asset quality deteriorated during the quarter, with gross NPA ratio rising by 37bp qoq to 3.5% and net NPA ratio rising by 31bp qoq to 2.2%. Annualised slippage ratio for 1QFY2012 stood at 2.1% (5.7% in 4QFY2011). Until now, the bank has only switched over accounts worth `50lakh and above to system-based NPA recognition.

Outlook and valuation: Structurally, the bank has had relatively higher exposure to large corporates, low CASA of ~24% and low fee/assets. Going forward, we expect the bank’s earnings to find support from increasing exposure to the SME and retail segments, improving other income and moderating asset-quality pressures, aided by increasing recoveries. However, at the CMP, the stock is trading at 1.0x FY2013E ABV, which we believe factors in the improvement expected in earnings quality. Hence, we remain Neutral on the stock.

Result Update on NTPC for 4QFY2011

For 4QFY2011, on a standalone basis NTPC reported a 20.9% yoy increase in adjusted net profit to `2,799cr. Bottom-line growth was aided by grossing up of RoE under the corporate tax rate for FY2011 (impact of `724cr) instead of the grossing up its RoE under MAT rate during 9MFY2011. However, for FY2011 as a whole, adjusted net profit was higher only by a marginal 5.4%. We maintain our Buy recommendation on the stock.

Top-line growth at 25.6% yoy: NTPC’s 4QFY2011 top line rose by 25.6% yoy to `15,519cr, aided by higher realisations due to higher fuel cost and grossing up under corporate tax rate (~34%). The company resorted to grossing up under corporate tax rate since it commercialised only ~1,000MW during FY2011 as against the earlier targeted ~3,000MW. ESO was lower by 1.3% during the quarter on account of low generation due to grid restriction and backing down by SEBs. However, the company maintained healthy PAF for the quarter (~96%) and for FY2011 (91%) as a whole, which enabled it to earn incentives. NTPC’s OPM for the quarter rose by 285bp on a yoy basis to 26.8%.

Outlook and valuation: NTPC has signed cumulative PPAs for 1,00,000MW, the payment for which is guaranteed under tripartite agreement till FY2016 and on the basis of first charge thereafter. NTPC is well placed in terms of fuel security due to the preference it gets in domestic coal supply and ability to pass through hike in fuel costs. Going ahead, NTPC’s growth will depend on the pace of capacity addition. We expect the company to register CAGR of 10.8% and 8.8% in its top line and bottom line over FY2011–13E. At the CMP of `171, the stock is trading at 1.9x FY2012E and 1.7x FY2013E P/BV. We maintain our Buy recommendation on the stock with a target price of `202.