Syndicate Bank: Good pick for the long term
Analysts have started upgrading Syndicate Bank after it beat the street expectations in the third quarter of 2012-13.
Though a part of this profit was triggered by the writing back of earlier tax provisioning, a majority was due to an improvement in operations. What separates Syndicate Bank from other public-sector (PSU) banks is its improving asset quality and lower provisioning in this quarter.
The new slippage for the quarter is Rs 900 crore compared with the figure of Rs 1,050 crore for the past two quarters. Syndicate Bank also managed to augment the recovery from its written-off account, which registered a growth of 23% year-on-year.
There was an overall improvement in the asset quality, and the gross non-performing assets (NPA) and net NPA have declined further to 2.31% and 0.85%, respectively. Its provision coverage ratio of 83% is also the highest among PSU banks.
With the end of this phase, the south India-based bank is entering a growth period. The credit and deposit growth of 17.3% and 14.6%, respectively, achieved in the third quarter of 2012-13, is significantly higher compared with the annualised credit and deposit growth of 14.9% and 10.9%, respectively, in 2009-12.
Had the bank not been selective about maintaining its asset quality, the business growth would have been much higher.
With good traction in the retail book, Syndicate Bank is expected to generate an above-average loan growth in the future without affecting its asset quality.
During the consolidation period, Syndicate Bank also shed its high-cost bulk deposits and improved its net interest margin (NIM) from 2.3% to 3.3%. The low tier I capital base, which is placed at 8.4%, is the only bottleneck for faster growth.
However, the government’s recapitalisation plan is on the verge of finalisation and Syndicate Bank is expected to get an equity infusion of nearly Rs 500 crore before March.
Considering its cautious loan book growth and limited asset quality concerns, Syndicate Bank is a good pick for long-term investors.
Since it is quoting at a low valuation—at the current market price, it is quoting at 1.01 times its book value—Syndicate Bank is a possible candidate for re-rating, which will help expand its valuation multiple further.
We pick the stock that has shown the maximum increase in consensus analyst rating during the past month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weightages to each of them (5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell).
Any improvement in consensus rating indicates that the analysts are becoming more bullish on the stock.
To make sure that we pick only companies with a decent analyst coverage, this search will be restricted to the stocks that have been covered by at least 10 analysts. You can see similar consensus analyst rating changes during the past week in ETW 100 table.