Allahabad Bank Buy (Another stellar performance aided by lower tax rate; sharp rise in other income ):: KJMC

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Allahabad Bank has once again reported strong PAT of Rs 5604.3mn, up 34.8%YoY
which was way ahead of our estimates of Rs 4697.6mn. NII for the quarter grew by
31.3% YoY ahead of our/street estimates while NIMs of the bank was maintained at
3.5%. Higher increase in profits was also supported by sharp increase in other
income by 35.2% to Rs 3484.1mn. ALBK reported slippages to the tune of Rs 5.9bn
while restructured assets stood at Rs 10.5bn. GNPA and NNPA of the bank
increased by 9bps and 10bps to 1.9% and 0.8% respectively.
The stock is currently trading at 0.7x of its FY13E ABV. We value the standalone
business at 0.9x of its FY13E ABV at Rs 217.6 and maintain our buy rating on the
stock with Target Price of Rs 196.
Key Highlights
Lower tax rate boost profits: ALBK has provided lower tax rate of 7.9% since it
has not availed tax benefits earlier on certain items like rural advances,
priority sector advances, MIS, etc. which has helped to boost profits above
our expectation. Also, management has guided in the last concall to avail Rs
3bn of tax benefits which will translate into 21% tax rate for the full year FY12
as compared to 26% in FY11.
Advances grew sequentially; NIMs remain stable: Advances for the quarter grew
4.9% sequentially to Rs 1tn due to strong growth in agri and corporate
advances while deposits for the quarter grew by 2.3% sequentially thereby
improving CD ratio to 69.1%. In addition, NIMs of the bank remained stable
at 3.5%.
Asset quality remains stable, restructured assets rise significantly: Asset quality of
the bank remained stable with Gross NPA and NNPA at 1.8% and 0.7%
respectively. Slippages during the quarter stood at Rs 5.9bn which includes
one big account from footwear industry situated in North of Rs 1.2bn. Major
chunk of slippages was from priority sector lending which constituted 60% of
the slippages. Management has denied having any exposure to Kingfisher or
GTL. The total outstanding restructured advances stood at Rs 38.2bn in
which Rs 2.6bn have slipped into the NPL category. Total restructured
amount during the quarter stood at Rs 10.5bn. No restructuring took place
for the SEBs. However, management has indicated to restructure Rs 6bn of
Rajasthan State Electricity Board in the coming quarter.
Other income grew sharply: Other income of the bank grew sharply by 35.4%
YoY to Rs 3484mn mainly due to healthy rise in fee income by 43.9% to Rs
2130mn and other non interest income of Rs 844mn. Trading gains stood at
Rs 210bn.
CASA remains stable: CASA share remains stable at 30% with savings
increased by 2.3% sequentially mainly due to addition of saving account
holder in West Bengal employees for which it has received mandate six
months back from West Bengal government.
Valuations and Outlook
ALBK has once again delivered strong results on the back of better growth
in NII, sharp increase in other income and maintaining stable NIMs. Also,
lower tax rate has boosted profits and will further boost the profits of the
bank since ALBK will be getting extra benefit of Rs 3bn which it has
mentioned in its earlier concall. Asset quality of the bank too remained
stable but negativity still remains on the restructured book. The stock is
currently trading at 0.7x of its FY13E ABV. We value the standalone business
at 0.9x of its FY13E ABV at Rs 217.6 and maintain our Buy rating on the
stock with Target Price of Rs 196.