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Andhra Bank (ANDB)
Banks/Financial Institutions
Sustaining high margins. Andhra Bank reported a stable quarter; margins remained
high at 3.9%, even as gross NPLs increased by 14% qoq (ratio at 1.3% maintained).
Andhra Bank has used the last few quarters to make high provisions on
pensions/gratuity and we expect incremental requirement to remain low (bank is
amortizing the costs in 3 years). Even as we assume margins to decline, we expect
Andhra Bank to deliver RoEs near 23-24% with about 4% dividend yield. Stock trades
at 1.1X FY2012E PBR. BUY with TP of `190 (`210 earlier).
Gross NPLs increase but within manageable levels; 1.4% slippage for the quarter
Andhra Bank’s gross NPLs almost increased 13% qoq to `8.7 bn as of Dec 2010. Slippages for the
quarter were at 1.4%, as compared to 1.7% of the previous quarter. Net NPL increased 3% qoq
to `3.1 bn (0.5% of loans). The management highlighted slippages were relatively broad-based
with no large account slipping during the quarter. Slippages from the restructured book were
nearly 40% of the total slippages reported during the quarter. While slippages have been higher
than trend levels, we continue to believe that slippages are within manageable limits for the bank.
We are factoring slippages at 1.2% for FY2011-13E. The bank has utilized the strong income to
make higher provisions resulting in net NPLs being stable qoq. Loan loss provisions for the quarter
were at 0.7% and we are building slippages to decline to 0.6% in FY2012-13E. Outstanding
restructured book has been maintained at 2Q levels with about 10% of these slipping into NPL.
Loan book growth gains pace; focus on SME continues
Andhra Bank’s loan book as of December 2010 was `656 bn (up 28% yoy) and 8% qoq growth.
Large corporate-led the growth for the quarter at 29% yoy (10% qoq) while SME loans grew by
29% yoy (6% qoq), retail loans grew by 27% yoy (up 8% qoq) while agriculture loans grew by
22% yoy (5% qoq). Share of SME loans, which was increasing in recent quarters, has been
maintained qoq at 15% of loans. We are factoring loan growth at 18% CAGR for FY2011-13E.
Margins impressive at 3.9% assisted by expansion in CD ratio and better asset yields
NIMs for the bank were stable at 3.9% led by expansion in CD ratio and better asset yields. Net
interest income grew by 44% yoy to `8.4 bn. However, it is important to note that cost of
deposits is rising sharply and further expansion in margins looks difficult without hiking lending
rates. Cost of deposits has increased by 17 bps qoq to 5.8% (35 bps from the low of 5.5% in
1QFY11 levels). CD ratio for the quarter improved 280 bps to 80%. CASA ratio declined by 190
bps to 29%. We factor margins to decline by 20 bps to 2.9% (KS calculated) in FY2012E.
Cost-income ratio declines to 39%; no changes to retirement costs
Cost-income ratio for the quarter was at 39% compared to 42% in September 2010. The
bank has broadly maintained its guidance on the retirement costs at `4.4 bn for pension and
`1.2 bn for gratuity. Of this, the bank is making a provision of `525 mn/quarter (`1.6 bn for
9MFY12) with about `170 mn for gratuity and `350 mn for pension. This assumes an
amortization period of 3 years as against other banks who are looking to amortize the same
across 5 years.
Other highlights for the quarter
Non-interest income declined by 11% yoy (4% qoq growth) to `2 bn. Core fee income
declined by 6% yoy while income from forex was flat at `160 mn for the quarter.
Overall capital adequacy is currently at 12.0% with tier-1 capital at 7.1% (excluding
profits for 9MFY11).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Andhra Bank (ANDB)
Banks/Financial Institutions
Sustaining high margins. Andhra Bank reported a stable quarter; margins remained
high at 3.9%, even as gross NPLs increased by 14% qoq (ratio at 1.3% maintained).
Andhra Bank has used the last few quarters to make high provisions on
pensions/gratuity and we expect incremental requirement to remain low (bank is
amortizing the costs in 3 years). Even as we assume margins to decline, we expect
Andhra Bank to deliver RoEs near 23-24% with about 4% dividend yield. Stock trades
at 1.1X FY2012E PBR. BUY with TP of `190 (`210 earlier).
Gross NPLs increase but within manageable levels; 1.4% slippage for the quarter
Andhra Bank’s gross NPLs almost increased 13% qoq to `8.7 bn as of Dec 2010. Slippages for the
quarter were at 1.4%, as compared to 1.7% of the previous quarter. Net NPL increased 3% qoq
to `3.1 bn (0.5% of loans). The management highlighted slippages were relatively broad-based
with no large account slipping during the quarter. Slippages from the restructured book were
nearly 40% of the total slippages reported during the quarter. While slippages have been higher
than trend levels, we continue to believe that slippages are within manageable limits for the bank.
We are factoring slippages at 1.2% for FY2011-13E. The bank has utilized the strong income to
make higher provisions resulting in net NPLs being stable qoq. Loan loss provisions for the quarter
were at 0.7% and we are building slippages to decline to 0.6% in FY2012-13E. Outstanding
restructured book has been maintained at 2Q levels with about 10% of these slipping into NPL.
Loan book growth gains pace; focus on SME continues
Andhra Bank’s loan book as of December 2010 was `656 bn (up 28% yoy) and 8% qoq growth.
Large corporate-led the growth for the quarter at 29% yoy (10% qoq) while SME loans grew by
29% yoy (6% qoq), retail loans grew by 27% yoy (up 8% qoq) while agriculture loans grew by
22% yoy (5% qoq). Share of SME loans, which was increasing in recent quarters, has been
maintained qoq at 15% of loans. We are factoring loan growth at 18% CAGR for FY2011-13E.
Margins impressive at 3.9% assisted by expansion in CD ratio and better asset yields
NIMs for the bank were stable at 3.9% led by expansion in CD ratio and better asset yields. Net
interest income grew by 44% yoy to `8.4 bn. However, it is important to note that cost of
deposits is rising sharply and further expansion in margins looks difficult without hiking lending
rates. Cost of deposits has increased by 17 bps qoq to 5.8% (35 bps from the low of 5.5% in
1QFY11 levels). CD ratio for the quarter improved 280 bps to 80%. CASA ratio declined by 190
bps to 29%. We factor margins to decline by 20 bps to 2.9% (KS calculated) in FY2012E.
Cost-income ratio declines to 39%; no changes to retirement costs
Cost-income ratio for the quarter was at 39% compared to 42% in September 2010. The
bank has broadly maintained its guidance on the retirement costs at `4.4 bn for pension and
`1.2 bn for gratuity. Of this, the bank is making a provision of `525 mn/quarter (`1.6 bn for
9MFY12) with about `170 mn for gratuity and `350 mn for pension. This assumes an
amortization period of 3 years as against other banks who are looking to amortize the same
across 5 years.
Other highlights for the quarter
Non-interest income declined by 11% yoy (4% qoq growth) to `2 bn. Core fee income
declined by 6% yoy while income from forex was flat at `160 mn for the quarter.
Overall capital adequacy is currently at 12.0% with tier-1 capital at 7.1% (excluding
profits for 9MFY11).
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