ALB continued to report dismal set of numbers with net profit plunging by 68.5% YoY in Q4FY13 largely due to 36.7% YoY increase
in provisioning expenses coupled with 18.0% decline in Net Interest Income. Asset quality deteriorated sharply on account of
2.6x surge in fresh slippages to INR 25.9 bn, out of which 3 accounts worth INR 9.4 are expected to be recovered by the next
quarter. The decline in NII was due to 98 bps fall in YoA owing to a base rate cut and interest reversals of INR 1.9 bn on bad loans.
We introduce FY15 estimates and retain our BUY rating on the stock with a revised target of INR 174 (Previous TP 195).
Sharp decline in NIMs
ALB witnessed a sharp sequential decline of 72 bps in NIMs to
2.3% due to a) 98 bps reduction in YoA owing to cut in base rates
from 10.75% to 10.20% in two tranches, and b) interest income
reversals on bad loans to the tune of INR 1.9 bn in Q4FY13.
Consequently, the NII declined by 18.0% YoY to INR 10560 mn in
Q4FY13. We expect NIMs to recover to ~3% levels over the next
couple of years on the back of increased focus on high margin
retail and MSME segments.
Asset quality sharply deteriorated
Asset quality deteriorated sharply with fresh slippages surging
sequentially by 159.7% to INR 25.9 bn in Q4FY13. Consequently
GNPA & NNPA deteriorated sharply increasing by 101 bps & 113
bps to 3.9% & 3.2% respectively. Importantly major portion of
these slippages was bulky in nature with 9 accounts contributing
to ~INR 16 bn out of which 3 accounts worth INR 9.4 are expected
to be recovered in next couple of quarters. We therefore expect
the asset quality to improve going forward with no strong pipeline
of stressed assets and ALB's renewed focus on credit monitoring
and faster recoveries & upgradations.
Restructured book - 11.4% of total advances
Restructured book increased to INR 148.8 bn, accounting for 11.4%
of advances (10.8% of advances in Q3FY13). The bank has
restructured advances of INR 13.9 bn in the last quarter, out of
which major restructuring was done for pharma, iron & steel apart
from other accounts in chemicals, textiles and food processing.
Restructuring pipeline for the current quarter stands at ~INR 5 bn.
Slippages from restructured portfolio to NPA stood at INR 12 bn.
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in provisioning expenses coupled with 18.0% decline in Net Interest Income. Asset quality deteriorated sharply on account of
2.6x surge in fresh slippages to INR 25.9 bn, out of which 3 accounts worth INR 9.4 are expected to be recovered by the next
quarter. The decline in NII was due to 98 bps fall in YoA owing to a base rate cut and interest reversals of INR 1.9 bn on bad loans.
We introduce FY15 estimates and retain our BUY rating on the stock with a revised target of INR 174 (Previous TP 195).
Sharp decline in NIMs
ALB witnessed a sharp sequential decline of 72 bps in NIMs to
2.3% due to a) 98 bps reduction in YoA owing to cut in base rates
from 10.75% to 10.20% in two tranches, and b) interest income
reversals on bad loans to the tune of INR 1.9 bn in Q4FY13.
Consequently, the NII declined by 18.0% YoY to INR 10560 mn in
Q4FY13. We expect NIMs to recover to ~3% levels over the next
couple of years on the back of increased focus on high margin
retail and MSME segments.
Asset quality sharply deteriorated
Asset quality deteriorated sharply with fresh slippages surging
sequentially by 159.7% to INR 25.9 bn in Q4FY13. Consequently
GNPA & NNPA deteriorated sharply increasing by 101 bps & 113
bps to 3.9% & 3.2% respectively. Importantly major portion of
these slippages was bulky in nature with 9 accounts contributing
to ~INR 16 bn out of which 3 accounts worth INR 9.4 are expected
to be recovered in next couple of quarters. We therefore expect
the asset quality to improve going forward with no strong pipeline
of stressed assets and ALB's renewed focus on credit monitoring
and faster recoveries & upgradations.
Restructured book - 11.4% of total advances
Restructured book increased to INR 148.8 bn, accounting for 11.4%
of advances (10.8% of advances in Q3FY13). The bank has
restructured advances of INR 13.9 bn in the last quarter, out of
which major restructuring was done for pharma, iron & steel apart
from other accounts in chemicals, textiles and food processing.
Restructuring pipeline for the current quarter stands at ~INR 5 bn.
Slippages from restructured portfolio to NPA stood at INR 12 bn.
16.7% growth in loan book
ALB reported 16.7% growth in advances to INR 1295 bn led by 30.5%
surge in corporate advances. ALB focussed more on high yielding
retail segment which witnessed a growth of 16.8% to INR 177 bn
(13.5% of total advances) aided by 31.5% surge in trade loans. ALB
plans to maintain its focus on retail segment and is targeting to
increase the share of retail loan to 20% in FY14. In addition it is
banking on MSME and corporate segment to drive its loan book.
CASA remained at +30% levels
Low cost CASA deposits increased by 12.9% YoY to INR 549 bn in
Q4FY13 (primarily led by 14.9% surge in SA balances), which
resulted in CASA ratio of 31.1% in Q4FY13 as against 30.8% in
Q4FY12 and 30.4% in Q3FY13. ALB’s continued focus in reduction
of bulk deposits resulted in INR 63 bn decline of the same, thereby
aiding 10 bps improvement in cost of deposits.
Outlook & Valuation
We expect asset quality concerns to recede for the entire banking
industry with the expected macro economic recovery in the next
financial year. ALB is also expected to witness sharp improvement
in asset quality backed by its renewed focus on credit monitoring
and faster recoveries & upgradations. Its strategy of focussing on
high yielding MSME & retail segment and reducing reliance on
bulk deposits in addition to stressing on CASA deposit
mobilization, will provide cushion to net interest margins.
We introduce FY15 estimates and retain our BUY rating on the
stock with a revised target of INR 174 (Previous TP 195). At our
target price, the stock would trade at FY15E P/BV of 1.0x.
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