UTI Bank (UTIB IN, INR 465, maintain Buy)
UTI Bank's Q4FY07 performance was slightly ahead of expectations due to higher fee income growth. Pre-provisioning operating profit growth of 63% Y-o-Y was in line with expectations. Net profit grew by 40% Y-o-Y to INR 2.12 bn, slightly higher than expectations. For FY07, net profit grew by 36% Y-o-Y to INR 6.6 bn and NII grew by 45% Y-o-Y.
Key highlights of the quarter were:
(1) Net interest margins improved sequentially to 3.06% from 3.0%
(2) Fee income grew 59% Y-o-Y.
(3) CASA improved to 40% in March 2007 from 37% in December 2007.
(4) Advances grew by 65% Y-o-Y to INR 369 bn.
(5) Provisions were higher on account of increased standard asset provisioning and higher investment depreciation.
(6) The bank opened 80 branches and extension counters during this quarter.
We maintain our FY09E EPS at INR 34.7, and introduce equity dilution in FY08, which leads to reduction in FY08E EPS by 8% to INR 26.6. We are revising our fee growth estimate upwards by 4% and 9% for FY08 and FY09 and increasing operating expenses by 4.8% and 7.2% for FY08 and FY09 respectively. We are introducing 15% equity dilution in FY08E. We see mild headwinds for the stock in the near term till the bank appoints a new chief executive (Dr. P.J. Nayak due to retire in July 2007). Also the bank might need to re-brand its business franchise as it would not be using "UTI" brand from FY09 onwards.
We expect the bank to deliver 18-19% RoE and 22% EPS CAGR during FY07-09E.
The stock currently trades at 2.6x FY08E book and 17.5x FY08E earnings. We maintain 'BUY' recommendation.
Download Edelweiss - UTI Bank - strong operating metrics; result update Q4FY07; maintain Buy