Allahabad Bank - NIMs Healthy; Slippages Stable Though High :: Edelweiss

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Allahabad Bank’s (ALBK) Q2FY15 PAT at INR1.4bn was much lower than our estimate as the bank made higher provisions to shore up coverage and due to higher taxes. Tax rate was higher at 67% (second quarter in a row) due to appreciation in the HTM portfolio and the bank’s policy to not resort to DTA/DTL creation on the same. Other key highlights were: 1) slippages though high were curtailed at INR13bn (3.75% run-rate); 2) relatively higher restructuring at INR14bn kept incremental stress elevated; and 3) balance sheet consolidation continued amid bank’s focus on de-risking its business model with both advances and deposits registering below-industry growth. Factoring in higher taxes and provisions, we lower our FY15E/16E PAT by 15%/9%. Assigning 0.8x FY16E ABV, our target price works out to INR132.

Steady slippages, higher write-offs keep GNPLs stable

Slippages were contained at INR13bn (contributed by Bharati Shipyard’s lumpy account of INR6.3bn). This, coupled with higher write-offs (INR6bn) kept GNPLs stable at 5.4%. Over past couple of years, the bank’s performance has been marred by lumpy slippages (due to exposure to stressed segments such as infra, iron & steel, etc), resulting in volatility in earnings. This keeps us vigilant and we await few more data points before drawing trends. Calculated coverage increased from 31% to 36%.

Restructuring yet to take a breather

The bank’s restructuring activity is yet to lose vigor with addition of INR14bn, taking its outstanding restructured book to INR122bn (8.8%). This keeps its stressed asset pool (GNPLs plus standard restructured book) at over 14%, higher than its PSU peers. Restructuring pipeline of another INR10bn makes asset quality a key monitorable.

LINK

https://www.edelweiss.in/research/Allahabad-Bank--NIMs-Healthy;-Slippages-Stable-Though-High;-Result-Update-Q2FY15/27404.html