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Andhra Bank (ANDB)
Banks/Financial Institutions
An improved performance. Andhra Bank reported a strong quarter with slippages
declining to 2% from 6% in 2QFY12 and gross NPLs declining qoq despite lower writeoffs.
Outstanding restructured loans increased 80 bps qoq to 5% of loans due to one
corporate exposure. We expect credit costs to remain high due to high exposure in the
power portfolio. Attractive valuations, healthy NIMs, strong cost-structures and
conservative credit costs were primary factors behind retention of our BUY rating
Earnings pressure due to higher provisions; improved performance on slippages
Andhra Bank’s earnings declined 8% qoq primarily due to higher provisions – 80% yoy growth.
Loan-loss provisions were higher at 1.5% for the quarter mainly due to NPV provisions for
restructured loans. Restructured loans increased sharply qoq (31% qoq) primarily from one
account-telecom. However, a few key positives from the result were: (1) slippages for the quarter
declined to 2% from 5.8% in September, 2011. Gross NPLs declined qoq despite lower write-offs
during the quarter; (2) exposure to sectors like construction has declined sharply qoq; (3) NIMs
have been maintained at 3.8% qoq; (4) provision coverage improved 370 bps qoq to 65%.
We are marginally revising our estimates downwards by 5-8% qoq due to higher provisions for
FY2013-14. Valuations are inexpensive at 0.8x book and 5x FY2012E EPS for RoEs are about 17%
and 5% EPS CAGR over FY2012-14E. Maintain BUY with TP of `150 (from `170 earlier). Higher
exposure in the power sector – 22% of loans remains a key risk.
Slippages decline to 2% from 6% levels; restructuring higher due to one corporate exposure
Andhra Bank reported a much improved asset quality performance during the quarter with lower
slippages and gross NPLs declining qoq. Slippages for the quarter declined to 2% from 6% levels.
Gross NPLs declined 5% qoq to `19 bn (2.4 of loans) while net NPLs declined 13% qoq to `9.4 bn
(1.2 of loans). The quarter saw negligible write-offs as compared to the previous quarter (90 bps).
Management indicated that strong focus on recovery through bilateral settlement and recovery
camps at various locations drove this performance. Outstanding restructured loans increased 80
bps qoq to 4.6% of loans primarily due to restructuring in one corporate portfolio resulting in
higher NPV provisions for the quarter. High exposure to the power vertical is likely to keep
restructured loans higher over the next two years.
We are factoring loan-loss provisions at 1.3% for FY2013-14E primarily to factor the possible
restructuring exercise we expect over the next two years in the bank’s power portfolio (22% of
loans). We are factoring slippages at 2.2-2.5% for FY2013-14 but expect coverage ratios to
decline marginally as earnings pressure would remain high.
Loan growth ahead of industry at 21%; growth in large corporate and SME
Andhra Bank’s loan book grew 21% yoy to `792 bn (6% qoq, 10% YTD) due to higher
growth in large corporate and SME segment. Large corporate segment, which contributes to
over 55% of loans, grew by 37% yoy (9% qoq) and SME grew by 29% yoy (3% qoq).
Agriculture and retail loans grew by 18% yoy respectively.
We note that exposure in power portfolio has been maintained at 22% levels but the bank
has reduced its exposure to construction companies to below 5% levels (from over 9% in
March 2011).
We are factoring loan growth at 14% CAGR for FY2012-14E; moderation from current
levels given the limited scope to expand (reaching internal limits) in segments like
infrastructure which has been their primary driver of growth in the past few years and the
focus of the bank towards improving asset quality.
NIMs stable qoq; CASA ratio improves 50 bps qoq
NIMs were stable qoq at 3.8% as the bank continues to benefit from loan re-pricing. NII
grew by 17% yoy (3% qoq) to `9.8 bn. Yield on advances improved 21 bps qoq partly due
to lower de-recognition of income qoq. Cost of deposits has increased by 13 bps qoq to
7.6% while yield on investments were broadly stable qoq at 7.8%. CD ratio improved 100
bps qoq to 80%.
CASA ratio improved 50 bps qoq to 27%. Overall deposits grew by 20% yoy. As compared
to other banks, we do understand that NIMs are relatively high despite a weak liability
profile. NIMs are currently supported by high lending yields. A large share of loans in power,
where projects are under construction, indicates a possibility of sharper-than-expected
decline as slippages could be lumpy in nature. However, peak deposit rates offer some
cushion against sharp slippage. We are factoring a 25-35 bps decline in NIM for FY2013-14.
Other highlights for the quarter
Non interest income increased 18% yoy to `2.4 bn mainly due to higher contribution
from forex income (92% yoy) and treasury income (63% yoy). Core fee income declined
7% yoy.
Overall capital adequacy is currently at 12.6% with tier-1 capital at 8.2%
Operating expenses grew 9% yoy as staff expenses increased 10% yoy. Cost-income ratio
was at 37%
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Andhra Bank (ANDB)
Banks/Financial Institutions
An improved performance. Andhra Bank reported a strong quarter with slippages
declining to 2% from 6% in 2QFY12 and gross NPLs declining qoq despite lower writeoffs.
Outstanding restructured loans increased 80 bps qoq to 5% of loans due to one
corporate exposure. We expect credit costs to remain high due to high exposure in the
power portfolio. Attractive valuations, healthy NIMs, strong cost-structures and
conservative credit costs were primary factors behind retention of our BUY rating
Earnings pressure due to higher provisions; improved performance on slippages
Andhra Bank’s earnings declined 8% qoq primarily due to higher provisions – 80% yoy growth.
Loan-loss provisions were higher at 1.5% for the quarter mainly due to NPV provisions for
restructured loans. Restructured loans increased sharply qoq (31% qoq) primarily from one
account-telecom. However, a few key positives from the result were: (1) slippages for the quarter
declined to 2% from 5.8% in September, 2011. Gross NPLs declined qoq despite lower write-offs
during the quarter; (2) exposure to sectors like construction has declined sharply qoq; (3) NIMs
have been maintained at 3.8% qoq; (4) provision coverage improved 370 bps qoq to 65%.
We are marginally revising our estimates downwards by 5-8% qoq due to higher provisions for
FY2013-14. Valuations are inexpensive at 0.8x book and 5x FY2012E EPS for RoEs are about 17%
and 5% EPS CAGR over FY2012-14E. Maintain BUY with TP of `150 (from `170 earlier). Higher
exposure in the power sector – 22% of loans remains a key risk.
Slippages decline to 2% from 6% levels; restructuring higher due to one corporate exposure
Andhra Bank reported a much improved asset quality performance during the quarter with lower
slippages and gross NPLs declining qoq. Slippages for the quarter declined to 2% from 6% levels.
Gross NPLs declined 5% qoq to `19 bn (2.4 of loans) while net NPLs declined 13% qoq to `9.4 bn
(1.2 of loans). The quarter saw negligible write-offs as compared to the previous quarter (90 bps).
Management indicated that strong focus on recovery through bilateral settlement and recovery
camps at various locations drove this performance. Outstanding restructured loans increased 80
bps qoq to 4.6% of loans primarily due to restructuring in one corporate portfolio resulting in
higher NPV provisions for the quarter. High exposure to the power vertical is likely to keep
restructured loans higher over the next two years.
We are factoring loan-loss provisions at 1.3% for FY2013-14E primarily to factor the possible
restructuring exercise we expect over the next two years in the bank’s power portfolio (22% of
loans). We are factoring slippages at 2.2-2.5% for FY2013-14 but expect coverage ratios to
decline marginally as earnings pressure would remain high.
Loan growth ahead of industry at 21%; growth in large corporate and SME
Andhra Bank’s loan book grew 21% yoy to `792 bn (6% qoq, 10% YTD) due to higher
growth in large corporate and SME segment. Large corporate segment, which contributes to
over 55% of loans, grew by 37% yoy (9% qoq) and SME grew by 29% yoy (3% qoq).
Agriculture and retail loans grew by 18% yoy respectively.
We note that exposure in power portfolio has been maintained at 22% levels but the bank
has reduced its exposure to construction companies to below 5% levels (from over 9% in
March 2011).
We are factoring loan growth at 14% CAGR for FY2012-14E; moderation from current
levels given the limited scope to expand (reaching internal limits) in segments like
infrastructure which has been their primary driver of growth in the past few years and the
focus of the bank towards improving asset quality.
NIMs stable qoq; CASA ratio improves 50 bps qoq
NIMs were stable qoq at 3.8% as the bank continues to benefit from loan re-pricing. NII
grew by 17% yoy (3% qoq) to `9.8 bn. Yield on advances improved 21 bps qoq partly due
to lower de-recognition of income qoq. Cost of deposits has increased by 13 bps qoq to
7.6% while yield on investments were broadly stable qoq at 7.8%. CD ratio improved 100
bps qoq to 80%.
CASA ratio improved 50 bps qoq to 27%. Overall deposits grew by 20% yoy. As compared
to other banks, we do understand that NIMs are relatively high despite a weak liability
profile. NIMs are currently supported by high lending yields. A large share of loans in power,
where projects are under construction, indicates a possibility of sharper-than-expected
decline as slippages could be lumpy in nature. However, peak deposit rates offer some
cushion against sharp slippage. We are factoring a 25-35 bps decline in NIM for FY2013-14.
Other highlights for the quarter
Non interest income increased 18% yoy to `2.4 bn mainly due to higher contribution
from forex income (92% yoy) and treasury income (63% yoy). Core fee income declined
7% yoy.
Overall capital adequacy is currently at 12.6% with tier-1 capital at 8.2%
Operating expenses grew 9% yoy as staff expenses increased 10% yoy. Cost-income ratio
was at 37%
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