Allahabad Bank - Restructuring Piles Up; Margin Recovers; Result Update Q3FY15 ::Edelweiss, report

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Allahabad Bank’s (ALBK) Q3FY15 PAT at INR1.6bn was lower than our estimate due to higher taxes. Tax rate was volatile and higher at 62% (third quarter in a row) due to appreciation in the HTM portfolio. Other key highlights were: (1) slippages, though high, were contained at INR10.8bn (3% run rate, lowest over past 7 quarters); (2) higher restructuring at INR26bn kept incremental stress high, guidance still higher; (3) balance sheet consolidation continued amidst focus on de-risking the business model with both advances and deposits registering below-industry growth; and (4) NII grew 20% YoY as NIMs retraced to 3.27% post the Q2FY15 blip. Factoring in higher taxes, we prune our FY15/16E PAT 17%/9%. ALBK’s volatile asset quality and our annual report analysis findings keep us vigilant.

Slippages contained; lower recoveries push up GNPLs

Slippages were contained at INR10.8bn (INR4bn contributed by NPLs from restructured book). However, lower recoveries/upgrades at INR4.5bn (versus INR7.7bn run rate) and lower write offs of INR2.9bn (INR6bn in Q2FY15) pushed GNPLs up to INR80bn (5.46%). Over the past couple of years, ALBK’s performance has been marred by lumpy slippages (due to exposure to stressed segments such as infra, iron & steel, etc), resulting in earnings volatility. This keeps us vigilant and we await a few more data points before drawing trend conclusions. Its restructuring activity is yet to lose vigour—added INR26bn, taking outstanding restructured book to INR143bn (9.7%). This keeps its stressed asset pool (GNPLs plus standard restructured book) at over 15%, higher than PSU peers. Further high restructuring pipeline (as RBI dispensation ends in Q4FY15), particularly in iron and steel (INR15bn pipeline), keeps us guarded.

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https://www.edelweiss.in/research/Allahabad-Bank--Restructuring-Piles-Up;-Margin-Recovers;-Result-Update-Q3FY15/28263.html