Syndicate Bank Q3FY13 Result Review

Syndicate bank on Jan 23, 2012 came out with its Dec 2012 quarter numbers, but muted growth disappointed the streets. The stocks yesterday closed lower by 5.26%, although it is trading with marginal gains up by 0.04% to Rs 132.3 per share today.

For the Dec 2012 quarter, Net Interest Income (NII) of the bank grew marginally by 5.65% to Rs 1400 crore on a YoY basis. Its net profit stood at Rs 508 crore against Rs 338 crore in the similar period last year, growing majorly on account of the tax rebate of Rs 174.25 crore. Profit before tax for the bank declined by 12% to Rs 334 crore on a YoY basis. The following are the key financial parameters of the bank:

While most of the public sector banks are facing serious headwinds when it comes to asset quality, Syndicate bank showed an improvement on the same. Gross and net NPA of the bank decreased by 16 and 7 basis points to 2.31% and 0.85% respectively, on a sequential basis.

As on Dec 31, 2012, Capital Adequacy Ratio (CAR) of the bank stands at 11.38%. The Board of directors in its meeting has given principle approval for raising capital by way of Qualified Institutional Placement (QIP) or by issue of Tier I or Tier II bonds. We believe this would help the banks CAR to move higher in the March 2013 quarter. Also, one may expect some kind of capital infusion from the government in the next couple of months.

The bank faced serious headwinds when it came to Net Interest Margin (NIM) which is evident from the fact that NIM decreased by 22 basis points to 3.28% on a YoY basis and also decreased by 5 basis points on a sequential basis. With the interest rate expected to soften in the coming months, the bank may see improvement in their NIM going ahead.

The bank posted a decent growth when it came to its business. As on Dec 31, 2012, deposits grew by 15% to Rs 164075 crore (in line with RBI estimate of deposit growing at 15% for FY13) and advances grew by 17.25% to Rs 134629 crore (above the RBI estimate of 16% for FY13).

On the segmental front, wholesale banking business performed extremely well compared to Treasury and Retail business. Revenue from the wholesale business grew by 35% to Rs 2410 crore while profit from the same grew by 24% to Rs 499 crore on a YoY basis. On the other hand, Treasury and Retail banking segment de-grew by 24% and 27% to Rs 112 crore and Rs 238 crore respectively.

The only positive from the numbers was the bank’s asset quality, which continued to show improvement. We believe the bank is currently facing headwinds on the top and bottomline growth and also on NIM front. On the valuation front, the bank is available at TTM Price to Earnings Multiple of 4.6x and on the Price to Book value front it is trading at around 0.8x which we believe is fairly valued. We would advise our readers to invest in a staggering manner keeping in mind that longer horizons garner better returns.