Allahabad bank Ltd-Q3FY11 Earnings Updates (Keynote Capitals)

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Q3-FY11 earnings updates on Allahabad Bank Ltd.

Allahabad bank has reported strong operating performance in 3QFY11 and much above the market expectations. Growth in NII was at Rs1051.63cr up by 55.7, mainly on account of robust growth in the advances book. Further, the other income decreased by 24.1% on yoy basis at Rs257.64cr and increase in the cost to income ratio by 40 bps has restricted the operating profit growth to 21.3% (yoy) at Rs788.43cr and  Net Profit growth at 20.4% on y-o-y basis.

Developments during the quarter

Ø   Healthy growth in business:

The market share of Advances and Deposits as of Dec-10 increased to 2.3% and 2.4% respectively.

Ø  Active on the Core-interest income:

The bank’s focus on Core Banking has resulted increase in its % of Net Interest Income to Operating Income to 80.3% in 3QFY11 from 66.6% in 3QFY10.

Ø   Increase in earnings:

The Bank delivered ROE of 20.5% (annualized) and ROA of 1.2% (annualized) for Q3FY11 and is well capitalized for growth with Total Capital Adequacy of 12.8% as at Dec 31, 2010.

Ø   Other developments:

§  The bank has planned to achieve Rs. 220000cr in total Business and to increase the number of branches to 2425 before the end of FY2011.

§  It launched its First Mobile Banking Van with ATM facility and also one Coin Vending Machine in Jharkhand.

§  2618 villages (population >2000) & 15549 villages (population <2000) to be covered by Mar-2012 & Mar-2014 respectively, of which:

o    26 Brick & Mortar branches.

o    200 Biometric ATMs.

o    2 Mobile Vans fitted with ATMs in 16 villages.

o    Remaining villages through Business Correspondents.

Valuation & Recommendation

Considering the above factors, we maintain our target price of Rs250 per share by assigning a multiple of 1.50x FY12E P/ABV, with a Buy recommendation. At CMP of Rs201.8, the stock is trading at 1.66 FY10 P/ABV and is expected to trade at 1.40xFY11E and 1.21xFY12E P/ABV.