SIB’s net earnings of Rs1.11bn were higher than estimates (PLe: Rs1.05bn) led by high treasury gains (up 1.5x QoQ), while core performance was weak on sluggish NII growth & soft fees. NII growth of 2.7% YoY was impacted by lower margins of 2.67% (down 9bps QoQ), while fee income was impacted waiving off transaction fees on demonetisation. Asset quality was largely stable with incremental slippages from restructured book, but bank continued to make higher credit cost to improve PCR & one fraud related provision. We have slightly tweaked our estimates to incorporate higher treasury gains & credit cost while have slightly lowered cost of fund assumptions. We retain “Accumulate” with increased TP to Rs25 (from Rs22) based on 0.94x Sep‐18E ABV (rolled over from Mar‐18ABV).
- PPOP performance driven by treasury gains:Performance remained sluggish with NII growth of ~2.7% YoY/‐6% QoQ as margins came off by 9bps QoQ to 2.67% on back of interest reversal from SDR a/c of Rs380mn (8bps impact), but Bank maintained its NIMs target of 2.7%‐2.8% for FY17. Overall PPOP was led by strong treasury gains of Rs1.27bn, excluding which core PPOP growth was slow at 7.6% YoY. Fees were also sluggish on waiving off transaction charges on demonetisation. Opex remained under control on no incremental branch & employee addition leading to better C/I (excl treasury) of 54.5% (down 375bps).
- Managed to retain loan growth with trend: Bank continued to grow loan book at 11% YoY despite difficult environment mainly supported by strong SME growth, while Retail (ex‐gold) also continued to contribute. In corporate, bank saw better sequential growth but it was in ticket size of Rs250‐Rs1000mn and they continue refrain from large ticket size consortium loans. Gold loans growth was slow with management attributing this to lack of focus due to demonetisation. Bank expects loan growth to pick‐up and guided 15‐17% loan growth in FY18.
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- Asset quality largely stable; watch list confined to 2.5% of loans:Asset quality remained largely stable with no change in impaired assets. Incremental slippages were from corporate restructured with some small slippages in Agri, while Retail & SME improved. Overall standard restructured book reduced to ~1.5% of loans (from 1.7%), while SDR/5:25 remained unchanged at 2.4% of loans. Incremental stress could be from watch list which is confined to SDR, 5/25 & Standard restructured of 2.5% of loans and doesn’t expect too high slippages.