IDBI Bank: A good long-term bet
Asset quality remains an important concern for IDBI Bank. Since the asset quality concerns are fully priced in, the bank is a good long-term bet.
Despite the Rs 907 crore slippage, the gross NPA increased only by Rs 49 crore on a quarter-over-quarter basis due to the aggressive write-off (Rs 371 crore), recoveries (Rs 289 crore) and upgradations (Rs 197 crore) in the fourth quarter. More importantly, the bank continues to report strong operational level performance. Its preprovision profit grew 33% on a y-o-y basis and 3% on a q-o-q basis despite the higher employee cost. The management’s efforts to garner lowcost deposits are also yielding fruit as CASA deposits rose 37% on a q-o-q basis and this helped the bank improve its CASA ratio by 102 basis points on a y-o-y basis to 25.1%.
The recent carnage in the public-sector banks due to asset quality concerns has brought down their valuations to very low levels. With this, the valuation gap between private-sector banks and public-sector ones have widened further. With the price correction, IDBI Bank is the cheapest bank even among the public-sector banks in terms of price to book value (PB) and most analyst upgrades, from sell to hold or hold to buy, have been triggered by this. While the decent business growth and improvements in operational ratios should sustain the current valuations, any positive news on the asset quality front will act as a positive trigger for the counter.
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