Bank scrips find favour post-Budget

STREET CUES

In the backdrop of a global meltdown, a market-unfriendly Budget saw the domestic stock market battered in the week ended Friday.

A section of analysts sees the Budget as neutral to the country's banking sector.

The country's largest private sector bank ICICI Bank is the top pick of brokerage house Man Financial.

The bank's Q3FY07 net profit shot up 42 per cent on the back of strong net interest income and fee income growth, and higher treasury gains. Net interest income rose 32 per cent y-o-y to Rs 1,710 crore owing to 56 per cent y-o-y growth in the interest earned on advances.

Non-interest income jumped 68 per cent primarily because of strong growth in fee income and treasury gains. Fee income surged 53 per cent y-o-y to Rs 1350 crore on its dominant presence in every segment of retail financial intermediation.

The bank's total deposits rose 47 per cent y-o-y to Rs 1,895 billion. Its current account-savings account (CASA) ratio stood at 23.9 per cent, while net retail NPAs were Rs 1260 crore.

"We maintain our 'buy' rating on the stock because of ICICI Bank's improved earnings visibility on the core business front, ability to leverage on the additional 190 branches (after the recent Sangli Bank acquisition) and the growing value of its subsidiaries. The sustainability of other income is a key to its earnings growth momentum. Any disappointment may lead to earnings revision," a Man Financial research report said.

Networth Stock Broking maintains a hold on UTI Bank. In Q3FY07, the bank saw a robust 55.5 per cent y-o-y growth in its business, led by 65.6 per cent growth in advances and 49.7 per cent rise in deposits. Retail advances jumped 58.9 per cent y-o-y.

Its CASA mix improved from 35 per cent to 37 per cent y-o-y, thereby enhancing the margins. Non-interest income grew 47 per cent to Rs 4,15.84 crore, while net profit rose 40.2 per cent y-o-y.

"UTI Bank's fee income saw a consistent healthy growth of 58.9 per cent in the past four quarters. Q3FY07 was also marked by a 67.8 per cent jump in trading profits. The net NPA ratio rose to 0.68 per cent from 0.74 per cent in Q2FY07. The bank has consistently delivered impressive business growth, backed by robust fee income growth. Sustaining a comfortable capital adequacy along the notable business income will be a key challenge. We maintain a 'hold' on the scrip," a Networth report said.

YES Bank, promoted by Rana Kapoor and Ashok Kapur and operational since November 4, is the top pick of Mumbai-based Edelweiss. In Q3FY07, the bank's net profit jumped 73 per cent y-o-y and 17 per cent q-o-q.

Its net interest income zoomed 84 per cent. Its net interest margin improved to 3.0 per cent and advances soared 151 per cent y-o-y. Non-interest income too improved by a hefty 80 per cent. Capital adequacy ratio stood at 14.3 per cent at the end of December 2006.

The bank infused Rs 120 crore through equity placement to Swiss Re.

"We like YES Bank for its strong management, ability to generate high fee income, high expected growth and M&A probability once the regulations ease. The stock currently trades at 3.1x FY08E book and 33x FY08E earnings. We maintain 'buy', Edelweiss said in one of its research reports.