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Healthy core operating performance, higher provisions dent bottomline:
Allahabad Bank (ALBK) reported PAT of Rs2.58bn, up 14.7% YoY, but down
sharply by 38.0% QoQ, lower than our as well as street estimates on account of
higher pension provisions made during the quarter. Net Interest Income (NII) for
the quarter grew strongly by 55.0% YoY and 9.5% QoQ to Rs11.5bn, driven by
strong advances growth (30.6% YoY and 8.9% QoQ), coupled with a 5bps QoQ
improvement in NIM to 3.49%. The improvement in margin could be traced
down to a 13bps QoQ increase in yields on advances (driven by 125bps PLR hike
since mid December 2010), outpacing the 6bps QoQ increase in the cost of
funds. Deposits grew by 24.4% YoY and 9.0% QoQ. CASA ratio improved
marginally to 33.5% v/s 33.2% in Q3FY11 on account of a healthy 9.8% QoQ
increase in CASA deposits. Non‐interest income grew by 82.2% QoQ on the back
of strong traction witnessed in the core fee income (up 40.8% YoY and 72.4%
QoQ). Staff expenses increased by 88.5% QoQ on account of Rs3.6bn worth
provisions towards pension liabilities. ALBK’s pension liability for the serving and
retired employees came in at Rs7.1bn and Rs2.5bn, respectively. Loan‐loss
provisions increased by 88.6% QoQ on account of a steep increase in slippages
during the quarter.
Slippages spike significantly: GNPAs increased by 7.0% QoQ on account of
significant increase in the fresh slippages to the tune of Rs8.13bn (v/s Rs3.6bn in
Q3FY11). Higher slippages were on account of bank’s transition to the systembased
NPL recognition system and continuation of slippages from the agri
segment. Moreover, historically Q4 witnesses higher slippages than any other
quarter during the year. Provision coverage, including technically written‐off
accounts, although declined on a QoQ basis, remained healthy at 75.7% v/s
80.2% in Q3FY11. Cumulative restructured portfolio increased marginally by
2.3% QoQ to Rs28.2bn or 3.0% of advances.
Valuations and Outlook: ALBK continues to grow at a healthy pace with stable
margins; however, we expect margins to have a downward bias in the second
half and expect margins to contract by ~18bps over the full year FY12.
Moreover, a steep spike in slippages raises questions over emerging asset
quality trends. Although, the sharp increase in slippages could be attributed to
the predominant agri and rural focus of the bank, intermittent spike in slippages
warrants caution is detrimental for steady valuations of the bank. We have
revised our earnings estimates downwards for FY12 and FY13 by 10% and 3%
respectively on account of expected margin pressures and higher loan loss
provisioning requirement as the bank is likely to maintain higher provisions to
maintain better asset quality. We maintain our ‘BUY’ rating on the stock with
revised price target of Rs283 (1.5x its FY12E ABV and 1.2x its FY13E ABV).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Healthy core operating performance, higher provisions dent bottomline:
Allahabad Bank (ALBK) reported PAT of Rs2.58bn, up 14.7% YoY, but down
sharply by 38.0% QoQ, lower than our as well as street estimates on account of
higher pension provisions made during the quarter. Net Interest Income (NII) for
the quarter grew strongly by 55.0% YoY and 9.5% QoQ to Rs11.5bn, driven by
strong advances growth (30.6% YoY and 8.9% QoQ), coupled with a 5bps QoQ
improvement in NIM to 3.49%. The improvement in margin could be traced
down to a 13bps QoQ increase in yields on advances (driven by 125bps PLR hike
since mid December 2010), outpacing the 6bps QoQ increase in the cost of
funds. Deposits grew by 24.4% YoY and 9.0% QoQ. CASA ratio improved
marginally to 33.5% v/s 33.2% in Q3FY11 on account of a healthy 9.8% QoQ
increase in CASA deposits. Non‐interest income grew by 82.2% QoQ on the back
of strong traction witnessed in the core fee income (up 40.8% YoY and 72.4%
QoQ). Staff expenses increased by 88.5% QoQ on account of Rs3.6bn worth
provisions towards pension liabilities. ALBK’s pension liability for the serving and
retired employees came in at Rs7.1bn and Rs2.5bn, respectively. Loan‐loss
provisions increased by 88.6% QoQ on account of a steep increase in slippages
during the quarter.
Slippages spike significantly: GNPAs increased by 7.0% QoQ on account of
significant increase in the fresh slippages to the tune of Rs8.13bn (v/s Rs3.6bn in
Q3FY11). Higher slippages were on account of bank’s transition to the systembased
NPL recognition system and continuation of slippages from the agri
segment. Moreover, historically Q4 witnesses higher slippages than any other
quarter during the year. Provision coverage, including technically written‐off
accounts, although declined on a QoQ basis, remained healthy at 75.7% v/s
80.2% in Q3FY11. Cumulative restructured portfolio increased marginally by
2.3% QoQ to Rs28.2bn or 3.0% of advances.
Valuations and Outlook: ALBK continues to grow at a healthy pace with stable
margins; however, we expect margins to have a downward bias in the second
half and expect margins to contract by ~18bps over the full year FY12.
Moreover, a steep spike in slippages raises questions over emerging asset
quality trends. Although, the sharp increase in slippages could be attributed to
the predominant agri and rural focus of the bank, intermittent spike in slippages
warrants caution is detrimental for steady valuations of the bank. We have
revised our earnings estimates downwards for FY12 and FY13 by 10% and 3%
respectively on account of expected margin pressures and higher loan loss
provisioning requirement as the bank is likely to maintain higher provisions to
maintain better asset quality. We maintain our ‘BUY’ rating on the stock with
revised price target of Rs283 (1.5x its FY12E ABV and 1.2x its FY13E ABV).
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