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ANDHRA BANK
PRICE: RS.119 RECOMMENDATION: BUY
TARGET PRICE: RS.148 FY13 P/E: 4.0X; P/ABV: 0.9X
Q2FY12 results: Core earnings in line but asset quality disappointed.
q NII grew 21.4% in Q2FY12 mainly aided by strong growth in advances
(22.1% YoY) despite 9bps decline in NIM. However, net profit was subdued
(grew by only 4.3% YoY) mainly due to spike in provisions & contingencies
(118% YoY).
q Loan growth came at 22.1% during Q2FY12, mainly supported by strong
growth in MSME and retail segments. However, deposit growth was
relatively moderate at 20.2% during the same period, resulting into 120
bps improvement in C/D ratio to 78.9% at the end of Q2FY12.
q In absolute terms, gross NPA and net NPA spiked 68.9% (QoQ) and
222.1% (QoQ), respectively during Q2FY12, as bank has completed the
full transition to system based NPA recognition system. Its Provision Coverage
Ratio (PCR) has also come down to 61.7% at the end of Q2FY12,
providing little cushion against any future deterioration in the asset
quality.
q We are modeling earnings to grow 14.9% CAGR during FY11-13E, while
return profile is also expected to remain healthy (FY13E - RoA: 1.2%, RoE:
21.9%) during next two years. We are maintaining BUY rating on the
stock with revised TP of Rs.148 (Rs.167 earlier) based on 1.15x of its
FY13E adjusted book value.
NII grew 21.4% mainly aided by strong growth in advances; however,
net profit was subdued mainly due to spike in provisions &
contingencies.
NII grew 21.4% to Rs.9.51 bn in Q2FY12 mainly aided by strong growth in advances
(22.1% YoY) despite 9bps decline in NIM.
However, net profit was subdued at Rs.3.16 bn (grew by only 4.3% YoY) mainly due
to spike in provisions & contingencies (118% YoY).
Loan growth faster than the deposit growth; C/D ratio improved
by 120 bps YoY.
Loan growth came at 22.1% during Q2FY12, mainly supported by strong growth in
MSME and retail segments. However, deposit growth was relatively moderate at
20.2% during the same period, resulting into 120 bps improvement in C/D ratio to
78.9% at the end of Q2FY12.
Within deposits, CASA mix grew only by 3.4% YoY, while term deposits grew
27.5% YoY leading to ~400 bps contraction in CASA mix (26.1% at the end of
Q2FY12). Going forward, we believe deposit mobilization would be the key to fund
its future loan growth as not much scope is left to enhance the LDR (loan deposit
ratio).
NIM improved marginally QoQ; we are modeling NIM at 3.74%
during FY12E and 3.55% during FY13E as against 3.8% witnessed
during H1FY11.
NIM improved by 5 bps (QoQ) to 3.82% during Q2FY12, which came above our
expectations. We are modeling NIM at 3.74% during FY12E and 3.55% during
FY13E as against 3.8% witnessed during H1FY11.
We believe NIM is less likely to stay at the current level as declining CASA share
(~400 bps YoY) would impact the cost of funds for the bank; while there is also little
scope to further increase the C/D ratio (currently at ~79%) which remains at the
elevated levels.
Asset quality deteriorated - sequentially, gross NPA and net NPA
spiked 68.9% (QoQ) and 222.1% (QoQ), respectively. Moreover,
coverage ratio is also down to 61.7% at the end of Q2FY12, providing
little cushion against any future deterioration in the asset
quality.
In absolute terms, gross NPA and net NPA spiked 68.9% (QoQ) and 222.1% (QoQ),
respectively during Q2FY12, as bank has completed the full transition to system
based NPA recognition system.
In percentage terms, gross NPA and net NPA now stands at 2.67% and 1.48%,
respectively at the end of Q2FY12. Its Provision Coverage Ratio (PCR) has also come
down to 61.7% at the end of Q2FY12, providing little cushion against any future
deterioration in the asset quality.
Valuation & recommendation
At the current market price of Rs.119, the stock is trading at 4.0x its FY13E earnings
and 0.9x its FY13E ABV. We are modeling higher credit costs (105bps in FY12 as
against 83bps in FY11) on back of spike in NPAs as bank has fully migrated to system
based NPA recognition system.
We are modeling earnings to grow 14.9% CAGR during FY11-13E, while return profile
is also expected to remain healthy (FY13E - RoA: 1.2%, RoE: 21.9%) during next
two years. We are maintaining BUY rating on the stock with revised TP of Rs.148
(Rs.167 earlier) based on 1.15x of its FY13E adjusted book value.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
ANDHRA BANK
PRICE: RS.119 RECOMMENDATION: BUY
TARGET PRICE: RS.148 FY13 P/E: 4.0X; P/ABV: 0.9X
Q2FY12 results: Core earnings in line but asset quality disappointed.
q NII grew 21.4% in Q2FY12 mainly aided by strong growth in advances
(22.1% YoY) despite 9bps decline in NIM. However, net profit was subdued
(grew by only 4.3% YoY) mainly due to spike in provisions & contingencies
(118% YoY).
q Loan growth came at 22.1% during Q2FY12, mainly supported by strong
growth in MSME and retail segments. However, deposit growth was
relatively moderate at 20.2% during the same period, resulting into 120
bps improvement in C/D ratio to 78.9% at the end of Q2FY12.
q In absolute terms, gross NPA and net NPA spiked 68.9% (QoQ) and
222.1% (QoQ), respectively during Q2FY12, as bank has completed the
full transition to system based NPA recognition system. Its Provision Coverage
Ratio (PCR) has also come down to 61.7% at the end of Q2FY12,
providing little cushion against any future deterioration in the asset
quality.
q We are modeling earnings to grow 14.9% CAGR during FY11-13E, while
return profile is also expected to remain healthy (FY13E - RoA: 1.2%, RoE:
21.9%) during next two years. We are maintaining BUY rating on the
stock with revised TP of Rs.148 (Rs.167 earlier) based on 1.15x of its
FY13E adjusted book value.
NII grew 21.4% mainly aided by strong growth in advances; however,
net profit was subdued mainly due to spike in provisions &
contingencies.
NII grew 21.4% to Rs.9.51 bn in Q2FY12 mainly aided by strong growth in advances
(22.1% YoY) despite 9bps decline in NIM.
However, net profit was subdued at Rs.3.16 bn (grew by only 4.3% YoY) mainly due
to spike in provisions & contingencies (118% YoY).
Loan growth faster than the deposit growth; C/D ratio improved
by 120 bps YoY.
Loan growth came at 22.1% during Q2FY12, mainly supported by strong growth in
MSME and retail segments. However, deposit growth was relatively moderate at
20.2% during the same period, resulting into 120 bps improvement in C/D ratio to
78.9% at the end of Q2FY12.
Within deposits, CASA mix grew only by 3.4% YoY, while term deposits grew
27.5% YoY leading to ~400 bps contraction in CASA mix (26.1% at the end of
Q2FY12). Going forward, we believe deposit mobilization would be the key to fund
its future loan growth as not much scope is left to enhance the LDR (loan deposit
ratio).
NIM improved marginally QoQ; we are modeling NIM at 3.74%
during FY12E and 3.55% during FY13E as against 3.8% witnessed
during H1FY11.
NIM improved by 5 bps (QoQ) to 3.82% during Q2FY12, which came above our
expectations. We are modeling NIM at 3.74% during FY12E and 3.55% during
FY13E as against 3.8% witnessed during H1FY11.
We believe NIM is less likely to stay at the current level as declining CASA share
(~400 bps YoY) would impact the cost of funds for the bank; while there is also little
scope to further increase the C/D ratio (currently at ~79%) which remains at the
elevated levels.
Asset quality deteriorated - sequentially, gross NPA and net NPA
spiked 68.9% (QoQ) and 222.1% (QoQ), respectively. Moreover,
coverage ratio is also down to 61.7% at the end of Q2FY12, providing
little cushion against any future deterioration in the asset
quality.
In absolute terms, gross NPA and net NPA spiked 68.9% (QoQ) and 222.1% (QoQ),
respectively during Q2FY12, as bank has completed the full transition to system
based NPA recognition system.
In percentage terms, gross NPA and net NPA now stands at 2.67% and 1.48%,
respectively at the end of Q2FY12. Its Provision Coverage Ratio (PCR) has also come
down to 61.7% at the end of Q2FY12, providing little cushion against any future
deterioration in the asset quality.
Valuation & recommendation
At the current market price of Rs.119, the stock is trading at 4.0x its FY13E earnings
and 0.9x its FY13E ABV. We are modeling higher credit costs (105bps in FY12 as
against 83bps in FY11) on back of spike in NPAs as bank has fully migrated to system
based NPA recognition system.
We are modeling earnings to grow 14.9% CAGR during FY11-13E, while return profile
is also expected to remain healthy (FY13E - RoA: 1.2%, RoE: 21.9%) during next
two years. We are maintaining BUY rating on the stock with revised TP of Rs.148
(Rs.167 earlier) based on 1.15x of its FY13E adjusted book value.
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