Core earnings remained strong; concern on asset quality to wane after 32% decline in restructured book at the end of moratorium. Net interest income (NII) grew at a robust pace of 39.9% y-o-y on back of healthy asset growth along with improvement in the margin from 3.34% in Q4FY09 to 3.88% in Q4FY10.
Net profit rose moderately at 4.0% y-o-y on back of sharp increase in provisions during Q4FY10 (Rs.2.14 bn in Q4FY10 as against Rs59 crore write-back in Q4FY09) due to higher slippage (Rs387 crore in Q4FY10) and adoption of more conservative provision policy. Restructured assets declined 32% to Rs.3,445 crore (5.5% of advances) driven by upgradation (these accounts are working well at the end of moratorium). Slippage from these accounts has been very marginal (0.6% of cumulative restructured book). However, Rs.3.87 bn slippage during
Q4FY10 is slightly negative, in our view.
Although gross NPA remained flat (QoQ) at the end of Q4FY10, net NPA increased as the bank wrote-off Rs.3.73 bn during the quarter. Provision coverage declined from 82.6% in Q3FY10 to 71.6% in Q4FY10 (including written-off accounts, it stands at 93.7%). We are slightly tweaking our earning estimates for FY11E and maintaining a buy rating on the stock with the target price of Rs.264 (Rs.228 earlier) based on P/ABV of 1.5x its FY11E adjusted book value.
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