IndusInd Bank:Earnings impacted

ANALYSTS' CORNER

Angel Broking recommends a "buy" on IndusInd Bank. The bank's performance during Q2 FY06 was disappointing, both on core income and profitability fronts. Net profit during the quarter declined 46.5 per cent to Rs 31 crore.

Decline in earnings was due to pressure on interest margins, lower non-interest income and increasing overheads. Core earnings of the bank were impacted during the quarter as net interest income declined by 7.3 per cent to Rs 91 crore.

This was largely due to pressure on margins as interest expenses rose by 18 per cent to Rs 212 crore, while interest income grew by nine per cent to Rs 304 crore.

However, the bank witnessed a strong growth in total business, which grew by 32.9 per cent to Rs 230 billion. Aggregate deposits were up 31.6 per cent to Rs 139 billion led by retail deposits as the bank started expanding its branch network by way of merger with Ashok Leyland Finance (ALFL) along with its existing widespread network of 131 branches, nine extension counters, 26 vehicle finance division (VFD) offices and 82 offsite ATMs.

IDBI: Outperformer

SSKI rates IDBI as an "outperformer". IDBI reported disappointing operating results in Q2 FY06 and hence the stock has corrected significantly after the results. The key issue for the quarter was downward repricing of its advances portfolio coupled with lesser degree of repricing of its high cost liabilities.

Significant clean up of balance sheet by utilising floating provisions and resultant reversal of some amount of interest income in the quarter led to negative NII.

But the management is confident that the trend of downward repricing of its loan book is largely over and as Rs 70 billion worth high cost liabilities get repriced over the second half of FY06, its margins will show improvement.

The report continues to remain convinced that structural balance sheet changes post conversion to bank will drive earnings growth and improvement in RoE.

Although its low cost CASA deposits have increased from 31 per cent in Q1 FY06 to 36 per cent in Q2 FY06, higher term deposit costs have led to marginal up tick in interest costs.

South Indian Bank

Anand Rathi Securities maintains its "buy" on South India Bank following the significant improvement in performance exhibited by the bank in Q2 FY06. The bank has reported an interest income of Rs 365 crore, against Rs 358 crore in the first half, with a growth in net interest income of 17.85 per cent to Rs 145 crore.

The bottomline has exhibited a profit of Rs 14 crore, against a loss of Rs 13 crore in the first half of last year. The report expects a growth of 11.03 per cent in the second half of FY06, in line with the growth in advances. Non-interest income has increased by 11.29 per cent.

However, during the first half, treasury income reduced to Rs 93 crore from Rs 145 crore. So an improvement in net interest margins and low cost funds would help in topline growth. On the other hand y-o-y increase was also seen in the employee cost by 30 per cent, which might have its effect in the future as well.