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ALLAHABAD BANK
RECOMMENDATION: BUY
TARGET PRICE: RS.260
FY12E P/E: 5.2X, P/ABV: 1.0X
Govt stake to rise to 58% with Rs.6.7 bn capital infusion;
equity dilution at 6.6%, however tier-I capital is likely to
perk up by 75 bps. Reiterate BUY as stock trades at cheap
valuation (1.0x FY12 ABV).
q Govt is infusing Rs.6.7 bn (29.5 mn shares @Rs.227) through preferential
route; GOI stake is estimated to expand to 58.0% (earlier ~55.0%) post
this preferential allotment. This would translate into 6.6% equity dilution along with ~200 bps compression in RoE (FY12: RoE is expected to
come at 23.1% as against 25.1% estimated earlier).
q However, this is likely to enhance tier-I capital by ~75 bps, addressing
the concern of capital constraints to a certain extent. Moreover, the enhanced GOI stake is likely to provide leeway for further future capital issuance without depending on the GOI, positive in our view.
q Asset quality has stabilized - gross NPA and net NPA increased (QoQ)
marginally at 4.8% and 11.0%, respectively during Q3FY11. However,
higher slippages at 2.5% and 2.0% (annualized) during Q2FY11 and
Q3FY11, respectively, have been a little dampener.
q We are slightly tweaking the numbers for FY11E as well as FY12E; maintain BUY with unchanged TP of Rs.260 based on 1.3x of its FY12E adjusted book value.
GOI stake likely to rise to 58% with Rs.6.7 bn capital infusion;
equity dilution at 6.6%
Govt is infusing Rs.6.7 bn (29.5 mn shares @Rs.227) through preferential route which
would enhance GOI stake to 58.0% (earlier ~55.0%) post this preferential allotment. This would translate into 6.6% equity dilution along with ~200 bps compression in RoE (FY12: RoE is expected to come at 23.1% as against 25.1% estimated
earlier).
However, this is likely to enhance tier-I capital by ~75 bps, addressing the concern
of capital constraints to a certain extent. Moreover, the enhanced GOI stake is likely
to provide leeway for further future capital issuance without depending on the GOI,
positive in our view.
Asset quality has stabilized; however, higher slippages during
last 2 quarters are little dampener.
Asset quality has stabilized - gross NPA and net NPA increased (QoQ) marginally at
4.8% and 11.0%, respectively during Q3FY11. Gross NPA as a proportion of gross
advances remained stable at 1.77% at the end of Q3FY11, similar to that in Q3FY10
as well as Q2FY11. Similarly, net NPA also remained stable at 0.59% at the end of
Q3FY11 as compared 0.56% at the end of Q2FY11; however, slight deterioration
from 0.35% at the end of Q3FY10.
However, higher slippages at Rs.4.54 bn (2.5% annualized) and Rs.3.62 bn (2.0%
annualized) during Q2FY11 and Q3FY11, respectively, have been a little dampener
as against the average run rate of ~Rs.3.0 bn during last six quarters. This Rs.4.54 bn
slippage during Q2FY11 also included Rs.2.0 bn worth of agricultural loans under
debt relief scheme.
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.
Business growth has been strong; CASA ratio maintained at 33-
34%, positive during rising rate environment
Its loan book has grown at 29.3% CAGR during FY04-10, slightly faster than the
system. During Q3FY11, advances grew at 32.2% YoY (4.4% QoQ) on back of
strong 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.
Its resource mobilization has also been healthier with deposit growth more or less
funding the traction in its loan book. Its C/D ratio stands comfortable at 71.8% at
the end of Q3FY11, with little pressure to hike the deposit rates in order to mobilize
more resources. During Q3FY11, its total deposits grew 28.4% YoY (6.4% QoQ)
with CASA mix remaining at 33.3%.
ALB has been able to maintain the share of domestic CASA mix at 33-34% of total
deposits in last couple of quarters. We believe this has helped them in managing the
cost of funds
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.
Healthy CASA mix to help protect its margin compression; expect
NIM to compress to 3.0% during FY12 as against 3.27% achieved
during 9MFY11
We believe healthy CASA mix at 33-34% is likely to help protect its margin compression in the rising interest rate environment.
ALB had reported NIM at 3.44% for Q3FY11, better than our expectations (9MFY11:
3.27%). NIM expansion of 47 bps (YoY) and 10 bps (QoQ) during Q3FY11 came on
the back of 68 bps improvement (YoY) in blended yield on assets along with 6 bps
decline (YoY) in cost of funds.
We are forecasting NIM at 3.15% and 3.02% during FY11 and FY12, respectively.
Bank has delivered NIM at 3.27% during 9MFY11 which implies, we are factoring in
decent compression in our margin assumption during Q4FY11 as well as FY12.
Valuations and recommendations
At the current market price of Rs.209, the stock is trading at 5.2x 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.32.8 and Rs.40.6 for FY11E and FY12E, respectively. Adjusted book value for FY11E and FY12E is estimated to be Rs.169.1 and
Rs.200.5, respectively.
We maintain BUY 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: 5.2X, P/ABV: 1.0X
Govt stake to rise to 58% with Rs.6.7 bn capital infusion;
equity dilution at 6.6%, however tier-I capital is likely to
perk up by 75 bps. Reiterate BUY as stock trades at cheap
valuation (1.0x FY12 ABV).
q Govt is infusing Rs.6.7 bn (29.5 mn shares @Rs.227) through preferential
route; GOI stake is estimated to expand to 58.0% (earlier ~55.0%) post
this preferential allotment. This would translate into 6.6% equity dilution along with ~200 bps compression in RoE (FY12: RoE is expected to
come at 23.1% as against 25.1% estimated earlier).
q However, this is likely to enhance tier-I capital by ~75 bps, addressing
the concern of capital constraints to a certain extent. Moreover, the enhanced GOI stake is likely to provide leeway for further future capital issuance without depending on the GOI, positive in our view.
q Asset quality has stabilized - gross NPA and net NPA increased (QoQ)
marginally at 4.8% and 11.0%, respectively during Q3FY11. However,
higher slippages at 2.5% and 2.0% (annualized) during Q2FY11 and
Q3FY11, respectively, have been a little dampener.
q We are slightly tweaking the numbers for FY11E as well as FY12E; maintain BUY with unchanged TP of Rs.260 based on 1.3x of its FY12E adjusted book value.
GOI stake likely to rise to 58% with Rs.6.7 bn capital infusion;
equity dilution at 6.6%
Govt is infusing Rs.6.7 bn (29.5 mn shares @Rs.227) through preferential route which
would enhance GOI stake to 58.0% (earlier ~55.0%) post this preferential allotment. This would translate into 6.6% equity dilution along with ~200 bps compression in RoE (FY12: RoE is expected to come at 23.1% as against 25.1% estimated
earlier).
However, this is likely to enhance tier-I capital by ~75 bps, addressing the concern
of capital constraints to a certain extent. Moreover, the enhanced GOI stake is likely
to provide leeway for further future capital issuance without depending on the GOI,
positive in our view.
Asset quality has stabilized; however, higher slippages during
last 2 quarters are little dampener.
Asset quality has stabilized - gross NPA and net NPA increased (QoQ) marginally at
4.8% and 11.0%, respectively during Q3FY11. Gross NPA as a proportion of gross
advances remained stable at 1.77% at the end of Q3FY11, similar to that in Q3FY10
as well as Q2FY11. Similarly, net NPA also remained stable at 0.59% at the end of
Q3FY11 as compared 0.56% at the end of Q2FY11; however, slight deterioration
from 0.35% at the end of Q3FY10.
However, higher slippages at Rs.4.54 bn (2.5% annualized) and Rs.3.62 bn (2.0%
annualized) during Q2FY11 and Q3FY11, respectively, have been a little dampener
as against the average run rate of ~Rs.3.0 bn during last six quarters. This Rs.4.54 bn
slippage during Q2FY11 also included Rs.2.0 bn worth of agricultural loans under
debt relief scheme.
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.
Business growth has been strong; CASA ratio maintained at 33-
34%, positive during rising rate environment
Its loan book has grown at 29.3% CAGR during FY04-10, slightly faster than the
system. During Q3FY11, advances grew at 32.2% YoY (4.4% QoQ) on back of
strong 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.
Its resource mobilization has also been healthier with deposit growth more or less
funding the traction in its loan book. Its C/D ratio stands comfortable at 71.8% at
the end of Q3FY11, with little pressure to hike the deposit rates in order to mobilize
more resources. During Q3FY11, its total deposits grew 28.4% YoY (6.4% QoQ)
with CASA mix remaining at 33.3%.
ALB has been able to maintain the share of domestic CASA mix at 33-34% of total
deposits in last couple of quarters. We believe this has helped them in managing the
cost of funds
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.
Healthy CASA mix to help protect its margin compression; expect
NIM to compress to 3.0% during FY12 as against 3.27% achieved
during 9MFY11
We believe healthy CASA mix at 33-34% is likely to help protect its margin compression in the rising interest rate environment.
ALB had reported NIM at 3.44% for Q3FY11, better than our expectations (9MFY11:
3.27%). NIM expansion of 47 bps (YoY) and 10 bps (QoQ) during Q3FY11 came on
the back of 68 bps improvement (YoY) in blended yield on assets along with 6 bps
decline (YoY) in cost of funds.
We are forecasting NIM at 3.15% and 3.02% during FY11 and FY12, respectively.
Bank has delivered NIM at 3.27% during 9MFY11 which implies, we are factoring in
decent compression in our margin assumption during Q4FY11 as well as FY12.
Valuations and recommendations
At the current market price of Rs.209, the stock is trading at 5.2x 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.32.8 and Rs.40.6 for FY11E and FY12E, respectively. Adjusted book value for FY11E and FY12E is estimated to be Rs.169.1 and
Rs.200.5, respectively.
We maintain BUY on the stock with unchanged price target of Rs.260 based on 1.3x
of its FY12E adjusted book value.
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