Sector Update: Banks de-rating - 'Is the worst over?'

Banks de-rating – 'Is the worst over?'

 

The banking sector is witnessing significant valuation de-rating on the back of deteriorating fundamentals. Over the past few months, two key concerns have become real – material moderation in credit growth and onset of a new NPL cycle. The latter is more pronounced within public banks with private banks reporting resilient asset quality as yet. With respect to credit growth, the main risk is modest growth in FY13 due to prolonged slowdown. Though the first round of valuation de-rating seems to be largely over with prices having adjusted to extant fundamentals, the critical question is whether another round would happen. We think its possible if the macro variables behave adversely vis-à-vis current expectations over the next few months. With this perspective, we turn cautious on the sector and cut price targets of our coverage banks significantly. Given the high near-term uncertainty, we believe that sticking to 'Safe Havens' such as HDFC Bank and ICICI Bank would be prudent. We also advise investment in 'Risky Bets' such as Axis Bank and BOB offering a favorable risk-reward post sharp price correction.

 

Bank Valuation Universe

Particulars	CMP (Rs)	M-Cap (Rs bn)	Reco	Tgt Price (Rs)	Up/Down (%)	Adj. BV (Rs)		Price/Adj. BV (x)		RoA (%)
						FY12E	FY13E	FY12E	FY13E	FY12E	FY13E
Public Banks
SBI	1,888	1,199	Buy	2,198	16.4	1,090.3	1,218.2	1.7	1.5	1.0	1.0
PNB	909	288	Buy	1,052	15.7	672.3	801.7	1.4	1.1	1.1	1.2
BOI	298	163	MP	325	9.3	280.5	328.6	1.1	0.9	0.7	0.8
BOB	691	271	Buy	932	34.8	600.9	710.1	1.2	1.0	1.2	1.2
Canara Bank	404	179	MP	459	13.4	395.2	463.4	1.0	0.9	0.9	1.0
Union Bank	231	121	Sell	197	(15.0)	171.5	198.5	1.9	1.6	0.9	0.9
OBC	300	87	Buy	336	12.2	345.1	384.2	0.9	0.8	0.8	0.9
Private Banks
ICICI Bank	820	945	Buy	1,136	38.5	486.4	522.3	1.7	1.6	1.4	1.4
HDFC Bank	439	1,025	Buy	556	26.8	123.5	141.9	3.6	3.1	1.6	1.6
Axis Bank	1,000	412	Buy	1,244	24.3	509.7	597.9	2.0	1.7	1.5	1.6
Yes Bank	259	91	Buy	294	13.4	132.5	164.8	2.0	1.6	1.4	1.5
DCB	42	8	MP	41	(2.6)	27.6	30.4	1.5	1.4	0.5	0.7

Source: IIFL PReMIA

 

 

 

Please find attached a report on the same. 

 

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Thanks & Regards 
Rohit Saxena
Phone No: 09899365905
Mail Id: simmi9sep@gmail.com