Buy Andhra Bank - Initiating coverage (Keynote Capitals)

§  Andhra Bank has the lowest net NPAs and highest provision coverage ratio:

Andhra Bank Asset Quality is the best with net NPA ratio at 0.17% and gross NPA ratio at 0.86% with a provision coverage ratio of 91.56% as of Mar, 10.

§  Andhra Bank is the first bank in India to have launched mobile biometric ATMs:

These ATMs stop at predestinated sites, and instead of entering the personal identification number (PIN), the customers have to match their finger prints with their recorded finger prints in the bank database. Thus it enables even the illiterate or uneducated customers of the bank to enjoy the ATM facility.

§  Diversification of Assets:

The bank also has a well-diversified portfolio with maximum funded exposure to the power sector (14.02%), followed by the Construction & Contractors (7.87%). Hence, the advantage of low risk is visible with well diversified loan book.

§  CAR of 13.93% is well above the regulatory minimum requirement of 9% as per Basel II.

§  The Bank plans to add 105-120 branches in other parts of the country in FY11.

Valuations:

At the CMP Rs163.90, the stock trades at 6.3xFY11E and 5.6xFY12E earnings and 1.7xFY11E and 1.4xFY12E adjusted book. Considering the profitability since FY08 and lowest NPAs level in FY10, we arrive at the fair value of Rs202.36per share.