Worth Banking On - Vijaya Bank

With one of the highest dividend yield of 3 per cent and good plans ahead in the current fiscal Vijaya Bank is likely to attract eyes of many investors going ahead who wish to witness decent gains in their portfolio on a longer term perspective. At present, main aim of any investor is to select such stock in their portfolio which may yield better returns going ahead. At this juncture Vijaya Bank fulfils the criteria to become an ideal candidate. The stock is trading at 1.40x adjusted price to book value (P/BV) which is at a discount to other listed peers act as an icing on the cake.

In the recently concluded Q1FY11 the bank has witnessed good growth in both topline and bottomline. The net interest margin (NIM) has witnessed a growth of 57 basis points and stands at 2.90 per cent for Q1FY11 on a YoY basis as against 2.33 per cent in Q1FY10. The operating profit has also witnessed a growth of around 50 per cent on a YoY basis and stands at `314.26 crore for Q1FY11. The gross non performing assets (NPA) and the Net NPA witnessed good improvement as it went down to 2.32 per cent and 1.35 per cent respectively on a YoY basis for Q1FY11 as against 2.94 per cent and 1.58 per cent for Q1FY10. The capital adequacy ratio under Basel II stands at 14.74 per cent which is well above the stipulated levels. The bank received its first tranche of capital infusion of `500 crore from the Government during the last fiscal, while the Government inducted additional tier-I capital of `700 crore during the first quarter of this year.

The bank plans to add additional 100 branches and 250 additional ATMs which will take the total mark to 1250 and 675 respectively will improve the presence of the bank. The bank plans to achieve business level of `126,000 crore, envisaging a 21 per cent YoY growth. The bank targets a credit book of `52,000 crore at the end of the present fiscal 2011. Advances during this first quarter ended June 2010 stood at `42,000 crore with a growth rate of 13.65 per cent on a YoY basis. Therefore, it is quite clear that the bank is on its way to surpass its estimates going forward which may act as a trigger for the stock going forward. The bank plans to contain the gross NPA level within 2 per cent and net NPA level within1 per cent. The bank’s current CASA stands at 24.24 per cent, and it targets a 25-per cent CASA level this year. The bank is also putting enhanced focus and is making a gradual shift to retail mode with less recourse to bulk business.

Coming to valuation, bank is currently trading at adjusted P/BV of 1.40x, which is discount to some of other PSBs like UCO Bank and Union Bank which are trading at adjusted P/BV of 1.51x and 1.89x respectively. Apart from the performance and valuation one other trigger is the comfortable capital adequacy level (Basel II) of the bank that will enable the bank to maintain comfortable credit requirement of the productive sectors. It may be a wise decision  to include Vijaya Bank to their portfolio with a price target of `105 with a one-year time horizon providing a upside potential of 25 per cent from the present levels.