Vijaya Bank Recommended

The banking sector as a whole has been witnessing a surge in credit offtake with loan growth of about 25 per cent at the beginning of capex cycle. The pickup in credit offtake is expected to continue on the back of an uptrend in capital expenditure and increase in infrastructure spending. Vijaya Bank is in a position to benefit from this uptrend, on account of its strong balance sheet in terms of high capital adequacy ratio and significantly improved asset quality. The bank has another trigger in terms of possibility of an acquisition of a north based bank to expand its geographical reach.

Key Points:

1) Vijaya Bank is a one of the most profitable banks among PSU banks with return on average assets at 1.17 per cent and return on average net worth at 21.67 per cent.

2) Capital adequacy ratio stood at a comfortable 12.79 per cent well above the RBI stipulated norm of 9 per cent.

3) The credit expansion during the quarter ending Dec 04 was substantially higher with gross advances increasing to Rs 13037 crore as against Rs 10344 crore in Q3FY04, witnessing an impressive jump of 26.03 per cent on y-o-y basis.

4) Gross NPAs declined from Rs 412.24 crore to Rs 385.38 crore, resulting in percentage of gross NPAs to gross advances declining from 3.99 per cent to 2.96 per cent y-o-y in the quarter ending Dec 04. The decline in gross NPAs was achieved on account of the banks aggressive approach to recover non-performing assets through road shows and initiation of measures under Securitisation Act.

5) Net NPAs declined drastically from Rs 146.12 crore in Q3FY04 to Rs 79.89 crore in Q3FY05 and the percentage of net NPAs to net advances reduced correspondingly from 1.45 per cent to 0.63 per cent. The NPA coverage ratio improved significantly from 63.15 per cent to 77.98 per cent.

6) Vijaya Bank recorded an impressive growth of 22.65 per cent in Net Interest Income (NII) to Rs 728.09 crore in Q3FY05 as against Rs 593.62 crore in Q3FY04.

7) Vijaya Bank currently trades at about 1.24 times FY06E adjusted book value and at 4.43 times FY06E earnings. The stock also offers an attractive current dividend yield of 4.68 per cent, capping significant downside risk.

LTP (as on 01 Mar '05) - 62.25
52 Week High - 75.80
52 Week Low - 36.55

Traderji, and other senior members your views are solicited.

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