Subdued earnings ALBK’s 3Q result ::HDFC Sec, report

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Subdued earnings ALBK’s 3Q result was a mixed bag. Asset quality performance was muted with stressed additions increasing to Rs 37bn vs. Rs 30/24bn in 2/1QFY15. Further disappointment came in from QoQ drop in coverage ratio (-515bps) and muted fee income (17% miss on estimate). Positive surprise was a 22bps QoQ rise in NIM to 3.3% (11-quarter high) which led to 5% beat on core-earnings. However, higher staff cost & effective tax rate led to muted profits of Rs 1.6bn, down 49% YoY and 28% below estimate. Asset quality is expected to remain weak for the next couple of quarters. Further likelihood of income derecognition in FY16 of Rs ~5bn (53% of FY16E PAT) on account of sale to ARCs during FY14 adds to our concern. Factoring this along with a subdued 3Q, we cut our ABV estimate by 11/5% FY16/17E respectively. Post the sharp correction, ALBK now trades at an optically attractive valuation of 0.7x FY17E ABV. However, we remain cautious as the bank faces high dilution risk in the near term and sub-optimal return ratios. Maintain NEUTRAL with a revised TP of Rs 117/sh (0.9x FY17 ABV).  Asset quality disappointed with 57% QoQ jump in fresh restructuring to Rs 26bn, having another Rs 15bn (with upside risk) in the pipeline. O/s standard restructured pool stands at 142bn, 10% of loans. Slippages were lower QoQ at Rs 11bn, ann. 3%, of which Rs 6.5bn was from restructured pool. Headline G/NNPA increased 4/13% QoQ to form 5.5/3.9% of loans respectively. Bank maintained its negative outlook on asset quality (in line with PSB peers) for 4Q.  Despite higher stressed additions, yields on loans surprisingly improved by 5bps QoQ. Further, a sharp rise in CD ratio, benefits of decline in wholesale rates and stable CASA supported the 22bps QoQ rise in NIM. We expect NIM to hover at current level with a negative bias as (a) we anticipate pressure on yields and (2) moderation in CD ratio.  ALBK has revised upwards its AS 15 assumption which led to a 19% QoQ increase in staff cost. This, along with muted fee income (-2%YoY) and low recoveries (-74% YoY) pushed C-I ratio to ~48% and also led to 7% miss on operating profits. Further, elevated provisioning costs (both credit and tax) led to a muted PAT

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http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3011188