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Consistency personified
We interacted with the management of Allahabad Bank (ALBK) at its analyst meet to
understand the business environment for the bank. Key highlights of the same:
Asset Quality: The management acknowledged a difficult business environment
due to slowing domestic economy and high interest rates. However, the bank
has practiced prudence in lending to quality borrowers and shying away from
risky businesses. The GNPA & NNPA stood at 1.8% & 0.7% as on 2QFY2012
respectively. The bank is 100% CBS as far as the identification of NPAs is
concerned and remains focused on improving quality of assets in the backdrop
of a challenging business environment. In fact, it has recovered Rs443cr loans
of which Rs355cr were small loans of Rs5lakh and below during 1HFY2012.
The management expects to recover another Rs550cr over H2FY2012. We
expect the slippages to remain low on account of higher recoveries and
anticipate GNPA of 1.8% over FY2012 and FY2013.
Consistent growth & resilient NIMs: ALBK has rebalanced its loan portfolio by
getting out of certain riskier accounts such as short-term loan business in
2QFY2012. Nonetheless, the loan growth has been consistent and the bank has
guided for loan growth to be 4-5% above systemic growth. Margins have been
resilient as evident in 2QFY2012 on the back of lower cost of funds, high
operating efficiency and asset re-pricing. We expect NIMs to be at ~3.3% in
FY2012 and FY2013.
Scalability: ALBK has recruited about 7,200 new employees in the last three
years and they are all mainly officers with CA or MBA qualification. The bank
has become young, median age of junior officers is 36, which is expected to
improve the productivity of the bank. Also, the bank is highly focused in scaling
up its branches and ATMs. The management plans to increase the access
points through expanding its branch network to 3,000 branches and 2,000 ATMs
by FY2015. This would give a major boost to its fee income as well. The feebased
income has gone up from Rs213cr to Rs257cr, a growth of 21% in
2QFY2012. ALBK continues to be the largest partner of LIC as far as sale of Life
Insurance policy is concerned. Also, it has over 2 lakh pensioners in its book.
Scaling up of access point would aid fee income growth going forward.
Outlook and Valuation
Total business of ALBK has grown at a CAGR of 22% over the last four years. We
expect ALBK to successfully implement the following broad strategies (a) focus on
core deposit, reducing dependence on bulk deposits; (b) emphasis on CASA deposit
mobilization; (c) maintaining a lean cost structure; (d) maintaining NIMs; (e) reviving
fee-based income; and (f) reinvigorating recovery of NPAs. All these efforts would
yield results and help the bank to strengthen its balance sheet on the one hand by
maintaining moderate level of profitability and overcome the adverse impact of global
slow down on the other. We expect ALBK to outperform the industry and continue to
grow at the same pace of ~22% between FY2011-13E. ALBK is an attractively
valued mid-size public sector bank with above average credit growth, lean cost
structure, high CASA deposits and firm asset quality. Further, lower bulk
dependence, wide branch network and higher coverage ratio makes ALBK
preferable over its peers. At CMP of Rs154, the bank is trading at 0.7x FY2013E
ABV. We maintain our Buy on Allahabad Bank based on 1.0x FY2013E ABV, with a
target price of Rs212, implying an upside of ~40% from the CMP.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Consistency personified
We interacted with the management of Allahabad Bank (ALBK) at its analyst meet to
understand the business environment for the bank. Key highlights of the same:
Asset Quality: The management acknowledged a difficult business environment
due to slowing domestic economy and high interest rates. However, the bank
has practiced prudence in lending to quality borrowers and shying away from
risky businesses. The GNPA & NNPA stood at 1.8% & 0.7% as on 2QFY2012
respectively. The bank is 100% CBS as far as the identification of NPAs is
concerned and remains focused on improving quality of assets in the backdrop
of a challenging business environment. In fact, it has recovered Rs443cr loans
of which Rs355cr were small loans of Rs5lakh and below during 1HFY2012.
The management expects to recover another Rs550cr over H2FY2012. We
expect the slippages to remain low on account of higher recoveries and
anticipate GNPA of 1.8% over FY2012 and FY2013.
Consistent growth & resilient NIMs: ALBK has rebalanced its loan portfolio by
getting out of certain riskier accounts such as short-term loan business in
2QFY2012. Nonetheless, the loan growth has been consistent and the bank has
guided for loan growth to be 4-5% above systemic growth. Margins have been
resilient as evident in 2QFY2012 on the back of lower cost of funds, high
operating efficiency and asset re-pricing. We expect NIMs to be at ~3.3% in
FY2012 and FY2013.
Scalability: ALBK has recruited about 7,200 new employees in the last three
years and they are all mainly officers with CA or MBA qualification. The bank
has become young, median age of junior officers is 36, which is expected to
improve the productivity of the bank. Also, the bank is highly focused in scaling
up its branches and ATMs. The management plans to increase the access
points through expanding its branch network to 3,000 branches and 2,000 ATMs
by FY2015. This would give a major boost to its fee income as well. The feebased
income has gone up from Rs213cr to Rs257cr, a growth of 21% in
2QFY2012. ALBK continues to be the largest partner of LIC as far as sale of Life
Insurance policy is concerned. Also, it has over 2 lakh pensioners in its book.
Scaling up of access point would aid fee income growth going forward.
Outlook and Valuation
Total business of ALBK has grown at a CAGR of 22% over the last four years. We
expect ALBK to successfully implement the following broad strategies (a) focus on
core deposit, reducing dependence on bulk deposits; (b) emphasis on CASA deposit
mobilization; (c) maintaining a lean cost structure; (d) maintaining NIMs; (e) reviving
fee-based income; and (f) reinvigorating recovery of NPAs. All these efforts would
yield results and help the bank to strengthen its balance sheet on the one hand by
maintaining moderate level of profitability and overcome the adverse impact of global
slow down on the other. We expect ALBK to outperform the industry and continue to
grow at the same pace of ~22% between FY2011-13E. ALBK is an attractively
valued mid-size public sector bank with above average credit growth, lean cost
structure, high CASA deposits and firm asset quality. Further, lower bulk
dependence, wide branch network and higher coverage ratio makes ALBK
preferable over its peers. At CMP of Rs154, the bank is trading at 0.7x FY2013E
ABV. We maintain our Buy on Allahabad Bank based on 1.0x FY2013E ABV, with a
target price of Rs212, implying an upside of ~40% from the CMP.
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