Performance parameters are neither exciting, nor off-putting. But if you are looking for a value – buy amongst similar banking stocks, here’s one

Syndicate Bank (SYNB) is coming out with its second public offer on 7 July 2005. The first issue was at par in October 1999. The main object of the issue is to augment the capital base to meet the future capital requirement to implement the Basel II standards. Funds are also required to sustain the growth in assets, in tune with the growth of the Indian economy, as of late there has been a huge demand for credit. As on March 2005, SYNB’s capital adequacy ratio (CAR) stood at 10.7% as against the Reserve Bank of India (RBI)-stipulated 9%. As of March 2005, it had 1,798 branches in India spread over 23 states and a workforce of 26395 people serving 1.6 crore customers across the country. Its net NPA ratio was 1.59%.

Strengths

Housing and retail outstanding loans (HRL) comprised 32.5% of the total outstanding loans of Rs 24377.23 crore as on March 2005. This segment has grown by 41% to Rs 7936 crore in FY05 from Rs 5631 crore in FY04. These segments will continue to be faster growing segments.

Total branch network is computerized and 245 branches have implemented the Centralised Banking Solution (CBS).

Weaknesses

The bank’s net interest margin (NIM) has fallen from 3.41% in FY04 to 3.2% in FY 2005.

Its operating expenses, as a percentage of net total income (OE / NTI) for FY 2005, is 55%, which is comparatively higher than its peer group.

Valuation

SYNB doesn’t score high on any parameter within the peer group range (Allahabad Bank, Andhra Bank, Corporation Bank, Indian Overseas Bank, UCO Bank and Vijaya Bank). In fact, its productivity and profitability ratios are comparatively lower compared to its peer group. FY 2005 EPS on fully diluted equity is Rs 8 and pre-IPO book value and adjusted book value are Rs 40.25 and Rs 31.23. The one-year, six- and three-month average price are Rs 47, Rs 56 and Rs 55. respectively.

Overall, SYNB does not have anything special to offer. However, the offer price band of Rs 46 to Rs 50 is such that its valuation parameters are the lowest within the peer group. The P/E range for the peer group banks is 6.4 to 13.7, while SYNB is being offered at a P/E range of 5.7 to 6.2. P/BV range for the peer group banks is 1.2 to 2.1, while SYNB is being offered at a post-issue P/BV range of 1.1 to 1.2. P/Adjusted BV range for the peer group banks is 1.6 to 2.3, while SYNB is being offered at post-issue P/ Adjusted BV range of 1.3 to 1.4.