Allahabad Bank - "Well capitalised with higher NIMs" ::LKP

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��


Key Highlights

Ø  Allahabad Bank reported 21%/17% yoy/qoq growth in PAT for Q2FY12. NII grew by 36%/12% yoy/qoq. NIMs for the quarter were higher at 3.7% v/s 3.3%/3.4% yoy/qoq. NIMs were benefited from the rebalancing of the loan portfolio towards higher yielding assets and reducing of bulk deposits. The management has continued to guide for NIMs of ~3.5% in FY12.

Ø  The loan book grew by 16%/(2%) yoy/qoq. The bank has focused on re-balancing of the portfolio and has exited some accounts which were either low yields or short term. The yoy growth was led by growth in MSME along with priority and retail loans. The bank has shifted from short term low yielding loans to loans with longer tenures because of which Rs.75 bn portfolio of short trem loans has come down to Rs.30bn. This explains the qoq slowdown in loan book. Infra loans grew 23%/1% yoy/qoq led by growth in power by 54%/(1%) yoy/qoq. The management has guided for a 24-25% yoy growth in FY12 driven by healthy pipeline of sanctions. 

Ø  The bank’s CD ratio was 0.68x v/s 0.73x/0.75x yoy/qoq. The bank expanded deposit base by 25%/6% yoy /qoq.  CASA share was lower at 31% v/s 35%/32% yoy/qoq while CA slowdown SA continued to show traction. Going forward the management expects a benefit from the change in policy of the west Bengal Government to pay all salaries via cheques v.s cash. The bank has continued to reduce share of bulk deposits and increase share of retail deposits.

Ø  The bank has moved to a 100% system based npa recognition system which translated to a 17%/7% and 45%/13% yoy/qoq increase in gross and net npas. Slippages were Rs.3500mn V/s Rs.1600 mn qoq mainly on account of small accounts from the agri sector. The management has guided for the normal run rate of slippages to resume in Q3 and Q4. PCR was marginally lower as new npa accounts come into the system. The bank remains focused on improving quality of assets and has recoveredRs.4,430 mn assets of which Rs.3550 mn were small loans Rs.5 lakhs and below during H1FY12 and expects recoveries of Rs.5500 mn over Q3FY12 and Q4FY12. The restructured portfolio of the bank remained at Rs.29 bn v/s Rs.30bn qoq. The bank restructured one major account of Rs.2680 mn of Electrotherm India during the quarter.

Ø  The bank’s fee income grew by 21%/24% yoy/qoq mainly due LC/BG, exchange revenue and processing fees. Overall non-interest income impacted by lower trading profit of Rs.70 mn V/sRs.380mn/Rs.260mn. 

Ø  The bank’s cost to income (C/I) ratio was higher during the quarter at 42% v/s 41%/39% yoy/qoq.  Operating cost of the bank has increased 27%/19% yoy/qoq mainly on account of employee expenses as the bank increased employee provisions due to higher headcount.

Ø  Tax rate during the quarter was 9% v/s 21%/27% yoy/qoq. Improvement in technology and a system based entry accounts has enabled the bank to claim benefits under agri and priority sector. This has resulted in the lower tax rate. The management expects a Rs.3 bn tax refund to come in during FY12 and thus a tax rate 500-600 bps lower than FY11.

Ø  The bank is sufficiently capitalized with a CAR of 12.99% and Tier I of 8.93% for the next 2 quarters. The management plans to seek Rs.10bn from GoI. The bank’s RoE increased to 26.5% v/s 25%/23% yoy/qoq. RoA was 1.2% v/s 1.3%/1.1%% yoy/qoq. 

All BK is trading at 1.0x and 0.8x P/ABV and 4.1x and 3.3x P/E FY12E and FY13E. We have revised our estimates upwards on account lower tax rate guided by the management for FY12. We have valued the stock at 1.0x which translates to a target price per share of Rs.213 per share.