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Indian Bank - High RoE RoA decent value

Printed From: The Equity Desk
Category: Investment Ideas - Creating winning portfolios!
Forum Name: Stock Synopsis
Forum Discription: A bried discussion of companies on very specific matters. Normally this is the prelude for further research as always members would be discussing quality companies with good management only
URL: http://www.theequitydesk.com/forum/forum_posts.asp?TID=2528
Printed Date: 21/Apr/2025 at 4:28pm


Topic: Indian Bank - High RoE RoA decent value
Posted By: EquityInv
Subject: Indian Bank - High RoE RoA decent value
Date Posted: 19/Nov/2009 at 11:24am
Bit Background:

Headquarted in Chennai, Indian Bank [INDIANB] is a leading bank in South India with widespread presence in Tamil Nadu, Kerala, Andhra Pradesh and Pondicherry. It was nationalised in 1969. It is a medium-sized bank and its balance sheet size stood at Rs 84,122 crore in FY 2009. It has 1,642 branches.

    In the current decade, the bank has seen a turn-around. At the end of March 2000, bad loans, or net non-performing assets, formed 16% of Indian bank's net advances. In FY06 it absorbed all the losses in its capital, which fell to Rs 744 crore from Rs 4,574 crore in the previous year. Since then, Indian Bank's profit has grown at compounded annual growth rate (CAGR) of 35% every year, while its balance sheet has grown at a CAGR of 21%. This shows that it has enough reach and scale to leverage.

I feel below are few strong points :

1) Consistent RoE of > 21% since last 5 years
2) RoA > 1.5 since last 3 years..
3) Gross NPA of 0.91% as on 30.09.2009
4) NIM stood at more than 3.5% in last six financial years
5) FY09 Book Vale Rs.156. Available at P/BV=1.
6) Available at P/E = 5.4 at current market cap of Rs.6770 crores and div. yield of > 3%..

     2009     2008     2007     2006     2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
RoA     1.59     1.53     1.5     1.17     1.11
RoE     22.03     21.18     22.59     22.24     21.74


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One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do – James Rogers


Replies:
Posted By: deveshkayal
Date Posted: 20/Nov/2009 at 12:29pm
Are you sure about NIMs ? As far as I know, only PNB (among the PSUs) has NIMs > 3.5%..

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"You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beat the guy with a 130 IQ. Rationality is essential"- Warren Buffett

Posted By: EquityInv
Date Posted: 20/Nov/2009 at 9:15am
Devesh,

I also had same doubt on NIM.. but here is the source %20 - http://ddshankar.wordpress.com/2009/07/04/indian-bank-the-dark-horse/ ....

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One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do – James Rogers

Posted By: deveshkayal
Date Posted: 20/Nov/2009 at 9:34am
Such numbers from a PSU bank is commendable.

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"You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beat the guy with a 130 IQ. Rationality is essential"- Warren Buffett

Posted By: master
Date Posted: 20/Nov/2009 at 9:55am
IB's NIMs have been consistently 3%+.
 
FY09 BV was however more like 127,  so P/BV near 1.30  http://www.moneycontrol.com/financials/indianbank/balance-sheet/IB04 -
P/BV for FY10 estimates are around 1.0.
 
Other points:
1. CASA is healthy at 31%, at par with PSU industry average.
2. Cumulative restructured assets as % of advances as at end of HY10 is among the highest at 9.5% (incremental restructuring for Q2 is low at 1%).
3. Earnings CAGR for FY10-11 expected to be in 11-12% range.
4. No growth in fee based income in recent past.
5. In  "proposed" consolidation in PSU space, with its current b/s size, it cannot be a hunter.
 
Some of the above explain its lower price multiple.
 


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Someone’s sitting in shade today because someone planted a tree long time ago.

Posted By: EquityInv
Date Posted: 21/Nov/2009 at 9:25am
Originally posted by master

<FONT face="Georgia, Times New Roman, Times, serif">IB's NIMs have been consistently 3%+.
 

<FONT face="Georgia, Times New Roman, Times, serif">FY09 BV was however more like 127,  so P/BV near 1.30  http://www.moneycontrol.com/financials/indianbank/balance-sheet/IB04 - <FONT face="Georgia, Times New Roman, Times, serif - link <FONT face="Georgia, Times New Roman, Times, serif">

<FONT face="Georgia, Times New Roman, Times, serif">P/BV for FY10 estimates are around 1.0.

<FONT face="Georgia, Times New Roman, Times, serif"> 

<FONT face="Georgia, Times New Roman, Times, serif">Other points:

<FONT face="Georgia, Times New Roman, Times, serif">1. CASA is healthy at 31%, at par with PSU industry average.

<FONT face="Georgia, Times New Roman, Times, serif">2. Cumulative restructured assets as % of advances as at end of HY10 is among the highest at 9.5% (incremental restructuring for Q2 is low at 1%).

<FONT face="Georgia, Times New Roman, Times, serif">3. Earnings CAGR for FY10-11 expected to be in 11-12% range.

<FONT face=Georgia>4. No growth in fee based income in recent past.

<FONT face="Georgia, Times New Roman, Times, serif">5. In  "proposed" consolidation in PSU space, with its current b/s size, it cannot be a hunter.

<FONT face=Georgia> 

<FONT face=Georgia><FONT face="Georgia, Times New Roman, Times, serif">Some of the above explain its lower price multiple.

<FONT face=Georgia> 


Thanks master for correcting in Book value [I included revenue reserve in it]..

Can you share reason for 10-11% growth estimates for FY11.

IB has been growing it's profit at CAGR of 30%+ for past 4 years. Moreover,it would be great if they main RoA of > 1.5 which seems big plus.



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One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do – James Rogers

Posted By: master
Date Posted: 22/Nov/2009 at 10:53pm
Interest rates rising in Q1-11 will do no good to IB. Moreover, revised coverage norms will call for accelerated provisioning.
 
Some analyst estimates i have seen for IB's provisions are Rs 458 cr & 531 cr for FY 10 and FY 11 leading to PAT of Rs 1370 and 1569 cr for respective years.
 
Of course, these can change either side, but given the muted credit growth and not much uptick in fee based income, earnings CAGR may be kind of 12% range. On this basis, FY 11 estimates for EPS & BV are Rs 37 & Rs 192.
 
 


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Someone’s sitting in shade today because someone planted a tree long time ago.

Posted By: EquityInv
Date Posted: 22/Nov/2009 at 12:54pm
Originally posted by master

Interest rates rising in Q1-11 will do no good to IB. Moreover, revised coverage norms will call for accelerated provisioning.
 
Some analyst estimates i have seen for IB's provisions are Rs 458 cr & 531 cr for FY 10 and FY 11 leading to PAT of Rs 1370 and 1569 cr for respective years.
 
Of course, these can change either side, but given the muted credit growth and not much uptick in fee based income, earnings CAGR may be kind of 12% range. On this basis, FY 11 estimates for EPS & BV are Rs 37 & Rs 192.
 
 


Thanks master for your kind reply with good details... Appreciate your response.

You seems to have really good insight of financial sector.. m wondering if your profession is related to financial sector ?


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One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do – James Rogers

Posted By: master
Date Posted: 13/Jan/2010 at 11:04pm

Article on Indian Bank  appeared on Value Research site. According to that, IB has given guidance of 20% growth in advances and a 17% in deposits in FY10. It is expected that total business will touch Rs 1.5 lakh crore in FY10.  On P/E basis, it is trading at ~5x FY10 and under 4.4x FY11



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Someone’s sitting in shade today because someone planted a tree long time ago.

Posted By: master
Date Posted: 27/Apr/2010 at 11:10pm

Given its decent results, price break-out of last 2 days was on the cards.

I was seeing buy report from a research firm with estimates for FY12E as under:
 
BV: 212;  EPS: 52;  ROE: 24%;  NIM: 3.74%;  ROA: 1.7%


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Someone’s sitting in shade today because someone planted a tree long time ago.

Posted By: photophobic111
Date Posted: 27/Apr/2010 at 10:30am
Originally posted by deveshkayal

Are you sure about NIMs ? As far as I know, only PNB (among the PSUs) has NIMs > 3.5%..


Could you please NIM and its significant w.r.t analysing Banks?
It's

Also, per this link

http://findarticles.com/p/news-articles/dna-daily-news-analysis-mumbai/mi_8111/is_20100313/indian-bank-iob-face-risk/ai_n52455797/


Indian Overseas Bank (IOB) and Indian Bank have the highest share of restructured loans in their gross loans, making them succeptible to an increase in non-performing assets.

Word of caution: Per this report, non- performing assets are set to rise for this bank.

Posted By: karn
Date Posted: 28/Apr/2010 at 10:26am
I have a question for those who track banks. Is it good or bad for a stock which is owned by lot of arbitrage mutual funds?

Posted By: Market Maniac
Date Posted: 28/May/2010 at 2:30am
These days while doing a net banking transaction, Indian Banks name also shows up with HDFC etc. 

Posted By: master
Date Posted: 25/Jul/2010 at 10:34pm
  • As happens so often, headline numbers - Q1 net profit up by 10.84% at Rs 368 crore vs Rs 332 crore and NII up 25.61% at Rs 927 crore vs Rs 738 crore - don't seem to be telling the full story.
  •  
  • It is of concern that Gross NPA of Rs988 cr is at 1.45% (up from 0.91%) and net has also significantly shot up from 0.19% to 0.76% y-o-y despite higher provisions. To me, sequentially q-o-q also looks lackluster. ROA dropped to 1.4%.
  • On earnings front, reasonable as of now at 6.95x ttm and 1.63x book.  
  •  
 It would however, be interesting to see which of these two tracks market picks tomorrow morning for IB.



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Someone’s sitting in shade today because someone planted a tree long time ago.

Posted By: nikhil090
Date Posted: 25/Jul/2010 at 10:46pm
The results are not upto the mark due to the single reason of NPA that are shown up in these results. Worst, there is no explanation given for the increase in NPA's. Though there provisioning is more than 80% the point is that why NPA increased by so much.. The stock is bound to correct in next week..

Posted By: master
Date Posted: 06/Oct/2010 at 10:50pm
Not-so-hot stocks also igniting. For instance, this one has doubled in less than a year. Never mind the last quarterlies.

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Someone’s sitting in shade today because someone planted a tree long time ago.

Posted By: akrish1982
Date Posted: 03/May/2011 at 6:48pm
Today, after interest rate hikes of 0.5% by RBI, how does Rs. 233 sound? Does anyone expect a huge fall from here?

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