Q3-FY11 earnings updates on Andhra Bank Ltd. :: Keynote

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Q3-FY11 earnings updates on Andhra Bank Ltd.

Andhra bank has reported strong operating performance in 3QFY11 and much above the market expectations. NII grew 44.2% on yoy basis mainly aided by strong growth in loan book (27.7% yoy) along with sharp improvement in NIM (56 bps yoy). Net profit increased by 20.2% yoy on back of strong core earnings inspite of subdued non-interest income.

Developments during the quarter

Ø   Healthy growth in business:

The total business of the bank grew at 25.3% (yoy) to Rs147682cr at the end of 3QFY11 from Rs117899cr as of 3QFY10. Total deposits of the bank rose  23.4% to Rs82095cr at the end of 3QFY11 from Rs66547cr as of 3QFY10. During the same period, advances grew at 27.7 % (yoy) to Rs65587cr at the end of Q3FY11 from Rs.51352cr as of 3QFY10. This has led to the improvement in C/D ratio from 77.2% at the end of 3QFY10 to 79.9% as of 3QFY11.

Ø  Active on the Core-interest income:

The bank’s focus on Core Banking has resulted increase in its Net Interest Income to Operating Income to 80.9% in 3QFY11 from 72.2% in 3QFY10.

Ø  Increase in earnings:

The Bank delivered ROA of 1.4% (annualized) for Q3FY11 and is well capitalized for growth with Total Capital Adequacy of 12.0% as at Dec 31, 2010.

Ø  Asset Quality:

The asset quality of the bank is comfortable with gross and net NPA ratios of 1.3% and 0.5% respectively, as of Dec-2010. Provision coverage stands at 80.4% well above RBI’s mandate of 70%.

Ø   Other developments:

·         The bank submitted a road map to RBI to provide banking service outlets in villages with population above 2000 by March 2012. The outlets will function through Business correspondents (BCs) mode by leveraging technology. The bank already covered 195 villages under FIP and has target to cover 500villages by March 2011 and 1144 villages by March 2012. In order to strengthen Financial Inclusion (FI), the Bank has opened 8.60lakhs ‘No Frill Accounts’ under Branch Banking.

·         Bank has lent Rs2297.30cr to Self Help Groups (SHG) by the end of Dec-10 and has commenced serving the SHG members through Smart cards at their doorsteps through Business Correspondents. The pilot project is rolled out in four branches i.e. Rayavaram, Kadiam, Anaparthi & Bibinagar covering about 2400 SHGs through branchless banking mode and is expected to be implemented in more number of branches going forward.

Valuation & Recommendation

At CMP of Rs138.65, the stock is trading at 1.56 FY10 P/ABV and is expected to trade at 1.35xFY11E and 1.13xFY12E P/ABV. Looking into the latest developments, we revise our target price to Rs185 per share by assigning a multiple of 1.50x FY12E P/ABV, with a Buy recommendation.