Emkay Global Financial Services is bullish on Andhra Bank (ANDB) and has recommended accumulate rating on the stock with a target of Rs 110 in its August 10, 2012 research report.
‚??ANDB‚??s Q1FY13 NII at Rs9.4bn (+3% yoy) and net profit at Rs3.6bn (-6% yoy) were in line with our estimates. Non-interest income growth at 9% yoy was aided by impressive performance on recoveries front, albeit fee income / trading gains remained lower. Key disappointments from the quarter were: a) 32% / 71% qoq rise in GNPA / NNPA b) slippages overall at Rs8.3bn (3.9% annualized) led by agri and large corporates (c) PCR declined to 60% vs 71% in Q4FY12 and d) Rs7.5bn of restructuring in Q1, taking cumulative restructured portfolio to Rs67bn (8% of loans). The only silver lining was improved recoveries / up-gradations at Rs1.4bn (32% of opening NPA) vs Rs590mn in Q1FY12 and 97% of loans under the standard asset category.‚??
‚??Loan portfolio grew 13% yoy (2.4% qoq) aided by growth across all major segments. NIM (reported) at 3.3% remained flat sequentially and is despite 25bps qoq decline in yield on advances. Deposits were up 18.5% yoy (1.7% qoq) with CASA ratio hovering at 27% levels. Andhra Bank restructured loans to the tune of Rs7.5bn in Q1 taking the cumulative loan portfolio to Rs67.9bn or 7.9% of total loans. For Q1, major restructuring came from sectors of infra SEB (Rs4.1bn), Solar PV cells (Rs1bn) and Infra (Rs476mn). Ex-Air India (Rs 6bn) and SEB (Rs26bn), restructured portfolio stands at Rs36bn or 4% of loans.‚??
‚??Concerns on NPA and lower LLP (as highlighted earlier) continue to linger on ANDB‚??s profitability and will drag growth lower. While stable 3.3% NIM and impressive performance on recovery front were positive highlights from the quarter, we are disappointed on higher slippages (Rs8.3bn or 3.9% annualized), lower than expected provisioning policy and restructuring front. The bank does not have any major restructuring pipeline. However higher exposure to risky segments of Infra and power may lead to higher number later and in turn increased provisions."
"We have lowered our FY13/FY14 EPS estimates downward by 14%/16% each factoring in marginally lower NII growth and higher credit cost. With slippage rate likely to be in excess of 2% over FY13-14E, we are factoring credit cost at 1.1%. Valuations at 0.7x/0.6x FY13/FY14E ABV and dividend yield of ~6% provides cushion. Maintain ACCUMULATE with revised target price of Rs110,‚?? says Emkay Global Financial Services research report.
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