Andhra Bank -Operating performance inline ; buy::Emkay

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Andhra Bank

Operating performance inline; Slippages Rise

BUY

CMP: Rs 176                                       Target Price: Rs 210

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n     NII growth ahead of estimates led by 27% growth in advances and 17bps qoq expansion in NIMs. However net profit slightly below expectations

n     Lower employee expenses partially offset negative impact of lower other income and higher provisioning

n     Asset quality deteriorated as GNPA and NNPA increased 33% and 75% sequentially. Provision cover fell to 61% (70% as per RBI norms) from 70% in Q1FY11

n     Valuations attractive at 1.7x FY11E/1.3x FY12E ABV. We maintain our BUY rating with price target of Rs210

Balance sheet growth remains healthy and broad based

The balance sheet growth remained healthy with advances growing by 27% yoy to

Rs610bn driven by healthy growth across the segments. All the segments viz. SME,

Retail, Agri and corporate grew by a healthy 35%, 30%, 24%, and 25% respectively.

Lower trading gains hurt other income

The other income declined by 8.2%qoq to Rs1.9bn as the bank reported lower trading gains

during the quarter along with decline in fee income sequentially. The fee income declined

by 8.8%qoq, while trading gains stood lower at Rs176mn during the quarter.

Pension liability yet to be crystallized and provided

The bank has not yet started providing for second pension liability, hence its employee cost

declined by 9.4%qoq to Rs2.6bn.

Higher provisioning hurts bottom-line

The bank did accelerated provisioning during the quarter to provide for higher slippages. As

a result the net profit growth was lower at just 10.5% to Rs3.0bn. However despite higher

provisioning the coverage ratio feel by 955bps to 61% in Q2FY11.

Asset quality deteriorates; Slippages rise

The bank asset quality deteriorates during the quarter as GNPA increased by 33%qoq,

while NNPA increased by a higher 76.3%qoq. Despite higher provisioning, significant rise in

NNPA indicates higher slippages during the quarter. However, we believe that the same

could be because of the agricultural NPAs. The provision cover declined to 61.1% (78.9%

including technical write off) from 70.7% in the preceding quarter.

Valuations and view

We find valuations attractive at 1.7x FY11E/1.3x FY12E ABV. We maintain our BUY rating

with price target of Rs210