22 May 2019
4QFY19 Results Update | Sector: Financials
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
Concerns abating; marching toward ‘business as usual’
IIB reported PAT of INR3.6b (our estimate: INR5.3b) in 4QFY19, affected by
915 / 13.1
higher provisions of INR15.6b (INR11.2b toward IL&FS). NII growth
2038 / 1334
moderated to 11% YoY led by interest reversal of INR1.5b, while the NIM
shrank to 3.59% (3.84% without interest reversals).
Financials & Valuations (INR b)
EPS Gr. (%)
18%/22%, while PAT declined 8.5% YoY to INR33b.
Total income increased 18% YoY, led by healthy other income growth of 29%
YoY. Core fees rose 28% YoY, led by forex income and loan processing fees.
Opex growth (+19% YoY) was slightly higher, leading to PPoP growth of 17%
YoY. IIB guided for a C/I ratio improvement of 150bp to 42% over FY20.
Loan growth stood at 29% YoY, led by robust traction across both corporate
and consumer portfolios. The share of retail loans in total book stands at
39% (52% incl. MFI & business banking). Deposit growth, too, picked up
sharply to 29% YoY (11% QoQ), driven by healthy accretion across CA, SA
and term deposits.
GNPA/NNPA almost doubled sequentially to INR39.5b/INR22.5b, as fresh
slippages spiked up to INR36.9b with IIB downgrading its IL&FS exposure of
INR30b. GNPA ratio, thus, increased to 2.1% (+97bp), while PCR declined by
466bp, resulting in an increase in the NNPA ratio to 1.21% (+62bp). IIB sold
INR1.85b of loans to ARCs, while restructured advances stood at 9bp. The
bank’s exposure toward stress accounts stands at 1.9% of total loans (fund
based + non-fund based), while SMA-2 book stands at 0.3% (INR6.4b).
(1) CASA ratio moderated 50bp QoQ to 43.1%. (2)
Structured finance fee forms only 7% of total fee, and IIB guided for
continued strength in fee income. (3) IIB opened 107 branches in the
quarter, and aims to reach 2,000 branches by end-FY20.
Valuation and view:
IIB has accelerated its provisions toward the infra group
and disclosed total fund + non-fund exposure of 1.9% toward other
potentially stressed groups. The bank has achieved healthy coverage on its
infra exposure, and also has healthy collateralization levels on the stressed
exposure (140%), which will help limit credit cost during FY20 (guidance of
60bp). Merger with BHAFIN will strengthen the earnings profile and further
boost the return ratios. We conservatively factor in higher credit cost of
100/80bp over FY20/21, resulting in an 8%/3% cut in our FY20/21 earnings
estimates. We, nevertheless, estimate IIB to deliver FY20/21 RoA of
2.0%/2.1% and value the stock at INR1,900 (3x FY21E ABV).
Research Analyst: Nitin Aggarwal
(Nitin.Aggarwal@MotilalOswal.com); +91 22 6129 1542 |
(Parth.Gutka@motilaloswal.com); +91 22 6129 1567
(Alpesh.Mehta@MotilalOswal.com); +91 22 6129 1526 |
(Himanshu.Taluja@motilaloswal.com); +91 22 6129 1544
(Yash.Agarwal@motilaloswal.com); +91 22 6129 1571
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.