For 4QFY2011, Allahabad Bank reported a moderate growth of 14.7% yoy in net profit (down 38.0% sequentially) to `258cr. Strong sequential business growth and non-interest income growth were the key highlights of the result. We recommend Accumulate on the stock.
Strong sequential business growth, but with higher slippages: The healthy business growth seen in 9MFY2011 continued in 4QFY2011 too, with advances and deposits registering a sequential growth of 7.9% and 9.0%, respectively. On a yoy basis, advances grew by 30.1% to `93,625cr, while deposits grew by 24.4% to `1,31,887cr. CASA ratio increased by 22bp to 33.5% for 4QFY2011. During the quarter, cost of deposits increased by 6bp to 6.0%, however, the yield on advances also increased by 13bp to 10.7%, leading to a 5bp increase in reported NIM to 3.5% for 4QFY2011. Allahabad bank’s non-interest income increased by 82.2% qoq (up 16.8% yoy) to `469cr due to a 72.4% qoq increase in fee income to `300cr. Slippages for the quarter were significantly higher at `813cr compared to `362cr in 3QFY2011. Consequently the slippage ratio increased from 2.0% in 3QFY2011 to 4.5% in 4QFY2011. Operating expenses grew by 72.7% yoy to `841cr on the back of provisions arising out 2nd pension liability (`394cr) that the bank made in FY2011. Other operating expenses rose by 31.7% yoy to `238cr.
Outlook and valuation: Considering the stable CASA deposits base, healthy capital adequacy and strong advances growth, the bank looks reasonably priced. At CMP, the stock is trading at 1.0x FY2013 P/ABV. Historically, the bank has traded in the range of 0.6-1.2x one-year forward ABV with a median of 0.96x. Taking into account the bank’s healthy NIMs and other income, we have assigned a FY2013E P/ABV multiple of 1.1x to the stock. Hence, we recommend an Accumulate rating on the stock with a Target Price of `227.
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