Visit http://indiaer.blogspot.com/ for complete details ALLAHABAD BANK 2QFY11: Core earnings remain strong; Asset quality deteriorates sequentially due to one-offs
- Allahabad Bank (ALBK IN, Mkt Cap US$2.4b, CMP Rs236, Not Rated) reported 2QFY11 PAT of Rs4b, up 21% YoY. Strong loan growth and improvement in NIMs led to strong earnings growth.
- Asset quality deteriorated sequentially on account of recognition of agri-relief amount as NPAs and one large account becoming non-performing.
- Management has guided for 25% growth, sustaining margins above 3%, and moderation in slippages going ahead.
Key highlights
- Loans grew 37% YoY (10% QoQ) to Rs831.8b and Deposits grew 30% YoY (5% QoQ) to Rs1.13t. CASA deposits grew 26% YoY and CASA mix remained stable at 34.7%.
- NIM improved 50bp YoY and 24bp QoQ to 3.34%. Sharp improvement in NIM came from higher CD ratio of 73% in 2QFY11 (70% in 1QFY11). Higher CD ratio led to 27bp QoQ high yield on funds despite stable loan yield and just 10bp improvement in investments yield. CoD increased 14bp QoQ.
- Total non-interest income declined 15% YoY to Rs3.4b; however, core fee income was up 17% YoY. Treasury gains for the quarter were Rs380m as compared to Rs1.7b in 2QFY10 and Rs900m in 1QFY11.
- Tax rate for the quarter was lower at 21% as excess tax provisions made in 1QFY11 was utilized. For 1HFY11, tax rate stood at 29.5%.
- NPA provisions stood at Rs2.25b compared to Rs700m in 1QFY11. Slippages during the quarter were higher at Rs4.5b on account of bank recognizing Rs2.2b of agri-debt relief scheme as NPAs and one large account of ~Rs1b becoming non-performing. GNPAs in absolute terms increased 29% YoY. Provisioning coverage ratio including technical write-off stood at 81%.
Strong business growth
- Loans grew 37% YoY (10% QoQ) to Rs831.8b whereas Deposits grew 30% YoY (5% QoQ) to Rs1.13t. Management had initially estimated loan book of Rs900b by Mar-11 (+25% YoY), but with current growth momentum this target is likely to be easily surpassed. However, management maintains its guidance of 25% YoY.
- Higher sequential growth in loans resulted in CD ratio improving 330bp to 73.2%. Management guides that this could be further increased to 74-75%.
- CASA deposits grew 26% YoY and CASA ratio stood at 34.7% vs 34.2% at the end of 1QFY11. CASA deposits grew 26% YoY and 6% QoQ to Rs394b. SA deposits grew 24% YoY and 5% QoQ to Rs310b.
Asset quality deteriorates QoQ due to one-offs; reported PCR at 81%
- Slippages during the quarter increased substantially to Rs4.5b vs Rs1.2b in 1QFY11. This was on account of bank recognizing Rs2.2b of agri-debt relief scheme as NPAs and one large account of ~Rs1b becoming non-performing. Upgradation and recoveries during the quarter were lower at Rs1.2b leading to GNPAs in absolute terms increasing 29% QoQ to Rs14.7b.
- Excluding agri debt relief NPA annualized slippage ratio for 1HFY11 stood at 2% vs 2.1% in FY10.
- ALBK provided Rs2.3b towards provisions for NPAs during the quarter. PCR including technical write-off stood at 81%.
- Outstanding restructured loans stands at 3.4% of the loan book at Rs30.3b.
Valuation and view
- Business growth remains strong for ALBK and with strong franchise we expect growth momentum to sustain. Higher slippage ex-agri-debt relief scheme during the quarter was discomforting; however, strong operating profits and management guidance of moderation in slippages augurs well for future profitability.
- We expect ALBK to report FY11 EPS of Rs34, BV of Rs158 and FY12 EPS of Rs41, BV of Rs191. In FY11-12, RoA is expected to be ~1.1% and RoE ~24%.
- The stock trades at 1.3x FY12E BV and 5.9x FY12E EPS. Not Rated.
No comments:
Post a Comment