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ALLAHABAD BANK
RECOMMENDATION: BUY
TARGET PRICE: RS.260
FY12E P/E: 4.7X,
P/ABV: 1.0X
Q3FY11: Core earnings came better than our expectations; asset
quality stabilized despite slippage at elevated levels (Rs.3.62 bn,
2.0% annualized). We maintain BUY on the stock.
q Net interest income (NII) grew 55.7% YoY on back of sharp expansion in
NIM (47 bps) and strong loan growth (32.2% YoY). However, net profit
growth was relatively moderate at 20.4% YoY due to muted non-interest
income and higher opex despite robust core earnings growth.
q CASA mix declined slightly to 33.3% at the end of Q3FY11 as compared
to 35.1% at the end of Q3FY10 and 34.7% at the end of Q2FY11. Expansion
in margin has come on the back of 68 bps improvement (YoY) in
blended yield on assets along with 6 bps decline (YoY) in cost of funds.
q Asset quality has stabilized - gross NPA and net NPA increased (QoQ)
marginally at 4.8% and 11.0%, respectively. However, higher slippage
(Rs.3.62 bn, 2.0% annualized) during Q3FY11 has been a little dampener.
q We have slightly tweaked our earning estimates for FY11E & FY12E and
maintain BUY on the stock with unchanged target price Rs.260 based on
1.3x of its FY12E adjusted book value.
NII up 55.7% YoY; 18% ahead of our expectations
Net interest income (NII) grew 55.7% YoY from Rs.6.76 bn in Q3FY10 to Rs.10.52
bn in Q3FY11 on back of sharp expansion in NIM (47 bps) and strong loan growth
(32.2% YoY). However, net profit growth was relatively moderate at 20.4% YoY
from Rs.3.45 bn in Q3FY10 to Rs.4.16 bn in Q3FY11 due to muted non-interest income
(decline of 24.1% YoY) and higher opex (42.7% YoY) despite robust core
earnings growth.
Strong business growth; loan book grew 32.2% YoY
The bank's gross loan book grew 32.2% YoY to Rs.868.4 bn at the end of Q3FY11
vis-à-vis the corresponding quarter last year (4.4% QoQ).
The strong growth momentum in loan book has come on the back of robust growth
in MSE (38.5% YoY; 6.6% QoQ) and retail segments (28.3% YoY; 3.0% QoQ).
During the same period, agriculture grew moderately at 10.9% YoY.
Deposits grew 28.4% YoY (6.4% QoQ) from Rs.941.6 bn at the end of Q3FY10 to
Rs.1209.5 bn at the end of Q3FY11. Strong growth in loan book vis-à-vis deposits led
to improvement in the C/D ratio from 69.8% in Q3FY10 to 71.8% in Q3FY11.
CASA mix remained at 33-34%; likely to support the margin in
rising rate environment
CASA mix declined slightly to 33.3% at the end of Q3FY11 as compared to 35.1%
at the end of Q3FY10 and 34.7% at the end of Q2FY11.
We are forecasting CASA share to remain at ~33% levels during FY11-12E and this
is likely to help the bank in sustaining healthy NIM, going forward.
NIM at 3.44% in Q3FY11; improved both QoQ as well as YoY
It reported NIM at 3.44% for Q3FY11, better than our expectations. It expanded 47
bps YoY and 10 bps QoQ on the back of 68 bps improvement (YoY) in blended yield
on assets along with 6 bps decline (YoY) in cost of funds.
Blended yield on assets improved sharply from 8.66% in Q3FY10 to 9.34% in
Q3FY11 despite moderate rise in yield on advances (10.54% in Q3FY10 to 10.58%
in Q3FY11) as well as yield on investments (6.83% in Q3FY10 to 7.14% in Q3FY11)
on back of stronger growth in loan book vis-à-vis investment book.
However, during the same period cost of funds declined 6 bps from 5.99% in
Q3FY10 to 5.93% in Q3FY11 on back of sharp fall in cost of borrowings (57 bps) as
compared to flat cost of deposits (1 bps only).
Muted non-interest income on back of lower treasury gains; moderate
growth in fee income
Non-interest income declined 24.3% from Rs.3.40 bn in Q3FY10 to Rs.2.58 bn in
Q3FY11 on back of lower trading profit which declined 85.0% from Rs.1.33 bn in
Q3FY10 to Rs.0.20 bn in Q3FY11.
During the same period, fee income grew moderately at 11.5% to Rs.1.74 bn during
Q3FY11 as against Rs.1.56 bn during Q3FY10. However, other component of noninterest
income grew 24.8% from Rs.0.51 bn in Q3FY10 to Rs.0.63 bn in Q3FY11.
Asset quality stabilized; however, higher slippage during Q3FY11
has been a little dampener.
Asset quality has stabilized - gross NPA and net NPA increased (QoQ) marginally at
4.8% and 11.0%, respectively. Gross NPA as a proportion of gross advances remained
stable at 1.77% at the end of Q3FY11, similar to that in Q3FY10 and
Q2FY11.
However, net NPA as a proportion of net advances rose to 0.59% at the end of
Q3FY11 as compared 0.56% at the end of Q2FY11 and 0.35% at the end of
Q3FY10.
However, higher slippage (Rs.3.62 bn, 2.0% annualized) during Q3FY11 has been a
little dampener as against the average run rate of ~Rs.3.0 bn during last six quarters.
However, this slippage is down QoQ from Rs.4.54 bn in Q2FY11 which has also led
to sequential decline in credit costs - 0.97% during Q3FY11 as against 1.24% in
Q2FY11.
Cumulative restructured book stands at Rs.27.5 bn at the end of Q3FY11 (3.2% of
gross advances), which is in line with the industry average. Out of this, Rs.3.91 bn
has already slipped into NPA.
Valuations
At the current market price of Rs.202, the stock is trading at 4.7x its FY12E earnings
and 1.0x its FY12E ABV. We have slightly tweaked our earning estimates for FY11E
& FY12E and now expect net profit for FY11E and FY12E to be 15.62 bn and
Rs.19.33 bn.
This would result into an EPS of Rs.35.0 and Rs.43.3 for FY11E and FY12E, respectively.
Adjusted book value for FY11E and FY12E is estimated to be Rs.165.7 and
Rs.199.7, respectively.
We maintain BUY rating on the stock with unchanged price target of Rs.260 based
on 1.3x of its FY12E adjusted book value.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ALLAHABAD BANK
RECOMMENDATION: BUY
TARGET PRICE: RS.260
FY12E P/E: 4.7X,
P/ABV: 1.0X
Q3FY11: Core earnings came better than our expectations; asset
quality stabilized despite slippage at elevated levels (Rs.3.62 bn,
2.0% annualized). We maintain BUY on the stock.
q Net interest income (NII) grew 55.7% YoY on back of sharp expansion in
NIM (47 bps) and strong loan growth (32.2% YoY). However, net profit
growth was relatively moderate at 20.4% YoY due to muted non-interest
income and higher opex despite robust core earnings growth.
q CASA mix declined slightly to 33.3% at the end of Q3FY11 as compared
to 35.1% at the end of Q3FY10 and 34.7% at the end of Q2FY11. Expansion
in margin has come on the back of 68 bps improvement (YoY) in
blended yield on assets along with 6 bps decline (YoY) in cost of funds.
q Asset quality has stabilized - gross NPA and net NPA increased (QoQ)
marginally at 4.8% and 11.0%, respectively. However, higher slippage
(Rs.3.62 bn, 2.0% annualized) during Q3FY11 has been a little dampener.
q We have slightly tweaked our earning estimates for FY11E & FY12E and
maintain BUY on the stock with unchanged target price Rs.260 based on
1.3x of its FY12E adjusted book value.
NII up 55.7% YoY; 18% ahead of our expectations
Net interest income (NII) grew 55.7% YoY from Rs.6.76 bn in Q3FY10 to Rs.10.52
bn in Q3FY11 on back of sharp expansion in NIM (47 bps) and strong loan growth
(32.2% YoY). However, net profit growth was relatively moderate at 20.4% YoY
from Rs.3.45 bn in Q3FY10 to Rs.4.16 bn in Q3FY11 due to muted non-interest income
(decline of 24.1% YoY) and higher opex (42.7% YoY) despite robust core
earnings growth.
Strong business growth; loan book grew 32.2% YoY
The bank's gross loan book grew 32.2% YoY to Rs.868.4 bn at the end of Q3FY11
vis-à-vis the corresponding quarter last year (4.4% QoQ).
The strong growth momentum in loan book has come on the back of robust growth
in MSE (38.5% YoY; 6.6% QoQ) and retail segments (28.3% YoY; 3.0% QoQ).
During the same period, agriculture grew moderately at 10.9% YoY.
Deposits grew 28.4% YoY (6.4% QoQ) from Rs.941.6 bn at the end of Q3FY10 to
Rs.1209.5 bn at the end of Q3FY11. Strong growth in loan book vis-à-vis deposits led
to improvement in the C/D ratio from 69.8% in Q3FY10 to 71.8% in Q3FY11.
CASA mix remained at 33-34%; likely to support the margin in
rising rate environment
CASA mix declined slightly to 33.3% at the end of Q3FY11 as compared to 35.1%
at the end of Q3FY10 and 34.7% at the end of Q2FY11.
We are forecasting CASA share to remain at ~33% levels during FY11-12E and this
is likely to help the bank in sustaining healthy NIM, going forward.
NIM at 3.44% in Q3FY11; improved both QoQ as well as YoY
It reported NIM at 3.44% for Q3FY11, better than our expectations. It expanded 47
bps YoY and 10 bps QoQ on the back of 68 bps improvement (YoY) in blended yield
on assets along with 6 bps decline (YoY) in cost of funds.
Blended yield on assets improved sharply from 8.66% in Q3FY10 to 9.34% in
Q3FY11 despite moderate rise in yield on advances (10.54% in Q3FY10 to 10.58%
in Q3FY11) as well as yield on investments (6.83% in Q3FY10 to 7.14% in Q3FY11)
on back of stronger growth in loan book vis-à-vis investment book.
However, during the same period cost of funds declined 6 bps from 5.99% in
Q3FY10 to 5.93% in Q3FY11 on back of sharp fall in cost of borrowings (57 bps) as
compared to flat cost of deposits (1 bps only).
Muted non-interest income on back of lower treasury gains; moderate
growth in fee income
Non-interest income declined 24.3% from Rs.3.40 bn in Q3FY10 to Rs.2.58 bn in
Q3FY11 on back of lower trading profit which declined 85.0% from Rs.1.33 bn in
Q3FY10 to Rs.0.20 bn in Q3FY11.
During the same period, fee income grew moderately at 11.5% to Rs.1.74 bn during
Q3FY11 as against Rs.1.56 bn during Q3FY10. However, other component of noninterest
income grew 24.8% from Rs.0.51 bn in Q3FY10 to Rs.0.63 bn in Q3FY11.
Asset quality stabilized; however, higher slippage during Q3FY11
has been a little dampener.
Asset quality has stabilized - gross NPA and net NPA increased (QoQ) marginally at
4.8% and 11.0%, respectively. Gross NPA as a proportion of gross advances remained
stable at 1.77% at the end of Q3FY11, similar to that in Q3FY10 and
Q2FY11.
However, net NPA as a proportion of net advances rose to 0.59% at the end of
Q3FY11 as compared 0.56% at the end of Q2FY11 and 0.35% at the end of
Q3FY10.
However, higher slippage (Rs.3.62 bn, 2.0% annualized) during Q3FY11 has been a
little dampener as against the average run rate of ~Rs.3.0 bn during last six quarters.
However, this slippage is down QoQ from Rs.4.54 bn in Q2FY11 which has also led
to sequential decline in credit costs - 0.97% during Q3FY11 as against 1.24% in
Q2FY11.
Cumulative restructured book stands at Rs.27.5 bn at the end of Q3FY11 (3.2% of
gross advances), which is in line with the industry average. Out of this, Rs.3.91 bn
has already slipped into NPA.
Valuations
At the current market price of Rs.202, the stock is trading at 4.7x its FY12E earnings
and 1.0x its FY12E ABV. We have slightly tweaked our earning estimates for FY11E
& FY12E and now expect net profit for FY11E and FY12E to be 15.62 bn and
Rs.19.33 bn.
This would result into an EPS of Rs.35.0 and Rs.43.3 for FY11E and FY12E, respectively.
Adjusted book value for FY11E and FY12E is estimated to be Rs.165.7 and
Rs.199.7, respectively.
We maintain BUY rating on the stock with unchanged price target of Rs.260 based
on 1.3x of its FY12E adjusted book value.
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