Lakshmi Vilas Bank (LVB) is a Karur (Tamil Nadu) based old private sector bank, having 275 branches (188 ATM's) and 16lac customers. The Bank has an asset base of Rs12,000cr (Dec 31, 2010 estimate) and a loan book of ~Rs7,000cr growing at 20%. With a bank capital of just below Rs800cr, LVB's equity multiplier stands above 15.
Deposits Classification: From total deposits of Rs10,000cr, LVB only has Rs2,000cr of the money in current account and savings account (CASA ratio of 20%, up from 18% in FY10). This results in a high cost of financing the deposits (roughly 7.5%). In fact, a cursory glance at LVB's press releases paint a gloomy picture. More often than not, it is announcing a hike in FD rates, hence relying on term deposits to boost its ability to lend.
Operational Performance: The Bank has recently announced an increase in NIM to as much as 3.75%. In the past, LVB's NIM has hovered in early 2%'s. It increased to 2.75% in FY10, and now the Company has announced a further 1% jump. The high increase has come despite no significant improvement in CASA. This poses a serious question on the kind of loans LVB is extending (as its average lending rates are 12%+). Despite good NIMs in the last two years (FY10 and FY11), company's net profits have remained below par, due to higher provisioning for non-performing loans. Its RoA is lowly 0.4%, with an RoE of none too impressive 7%.
Asset Quality: The Company's Gross NPA's as on Mar 31, 2010 were at an astoundingly high level of 5.12% (in absolute terms, Rs325cr). Due to higher provisioning for NPA's in FY10, the net NPA's may have come down to 2%, but Gross NPA's remain at very high levels (4%+). In absolute terms, NPL's have hardly come down (still at Rs 300cr+). LVB has reported a massive rise in NIM in Dec '10 quarter, raising doubts about the quality of newly extended loans as well. Relatively speaking, amongst high profile banks, LVB's Gross NPL ratio is just below ICICI (6.52%).
LVB is one of the smallest banks, and can count its next door neighbor Karuvr Vysya Bank, and Dhanlaxmi Bank for company. Karur has got Rakesh Jjunjhunwala's interest and a large GMR group shareholding, while Dhanlaxmi has got Nandan Nilekeni (no slouch himself, he owns 1.1%) to boot. Fundamentally also, LVB trails both its counterparts. It is no match, neither in fundamentals, nor in size, to the smallest public sector bank - Dena Bank. It can claim to better only Yes Bank in terms of CASA, but Yes scores heavily on accounts of growth (50%+), asset quality, and operational efficiency (RoA - 2%).
LVB is available at 1.4x book, but it is not exactly setting its book on fire by returning 7% on equity. In the past, it has had too many rights issue (you would expect that from a low RoE, average growth company), leading to dilution of stake of existing shareholders. Asset Quality remains a concern. The per bank valuation comes at Rs 4cr per branch, lower than the Rs 7cr per branch ICICI paid for Bank of Rajasthan, and ICICI's branch setup costs (Rs 7cr). But its branches lag ICICI's and BoR's in terms of quality and amount of business undertaken. Management plans to open 100 more branches in FY12. There is a potential for average returns, but nothing beyond that in 3-4 years.
Talking of banking sector in general, Yes's growth impresses us, but it has failed to improve its CASA ratio despite repeated tries, anyway Yes is available at inflated valuations. HDFC's fundamentals are praiseworthy but a P/B of 5x is enough to scare, even in loveliest of times. Dena Bank provides best value for money, but with a PSU tag as a liability. Banking sector moves in sync with Sensex, which we believe is at above par level. Hence, we recommend investors should stay away from banking sector as there are no great value-creating opportunities.
No comments:
Post a Comment