Allahabad Bank 3QFY2014 performance highlights and results update
February 6, 2014, Thursday, 06:08 GMT | 01:08 EST | 10:38 IST | 13:08 SGT
Allahabad Bank reported a weak operating performance, with muted earnings growth of 4.7% yoy. The key highlights from the results were a) continued pressure on asset quality (annualized slippage ratio at 4.5% as against 3.7% in 2QFY2014) and 71.5% yoy growth in non-interest income excluding treasury (on back of sale of assets to an ARC worth Rs.398cr for Rs.210cr). Despite a 17.4% yoy increase in operating earnings, the PAT growth came in muted at 4.7% yoy, largely due to a 23.7% yoy increase in NPA provisioning.
NIM stable qoq; Asset quality pressures continue: During 3QFY2014, the bank’s business grew moderately, with advance growth at 13.0% yoy and deposits growth at 9.9% yoy. While current deposits remained largely flat yoy, savings deposits grew at a relatively healthy pace of 14.1% yoy and aided overall CASA deposits to grow by 11.4% yoy. The bank’s CASA ratio declined 56bp qoq to 30.6%. The reported NIM for the bank remained largely flat sequentially at 2.8%. The bank’s non-interest income (excluding treasury) grew by 71.5% yoy, largely boosted by sale of Rs.398cr worth of assets to an ARC for Rs.210cr. Excluding the one-off sale income, non-interest income (excluding treasury) for the bank remained largely flat yoy. Asset quality pain continued for the bank during the quarter, as slippages increased to Rs.1,461cr (annualized slippage rate at 4.5% compared to 3.7% in 2QFY2014 and 3.6% in 3QFY2013), while recoveries/upgrades came in at Rs.463cr as compared to Rs.577cr in 2QFY2014. Gross NPAs increased 13.6% qoq, while net NPA levels were higher by 11.9% qoq. The PCR for the bank continued to decline sequentially (it declined by 306bp to 42.9% during the quarter). Additionally, the bank restructured advances worth Rs.605cr (of which 3 chunky accounts contributed close to Rs.400cr), thereby taking its outstanding restructured book to Rs.12,624cr (lower qoq on back of Rs.1,963cr of bonds received under FRP). Going ahead, the Management expects net slippages to the tune of ~Rs.1,200cr for 4QFY2014 (around Rs.1,000cr in 3QFY2014), while the restructuring pipeline is pegged at around Rs.2,460cr.
Outlook and valuation: Over the past six quarters, the bank has witnessed severe asset quality pain, as Gross NPAs have more than tripled and Net NPA levels have risen by almost 5 times. Going ahead, we remain concerned on the bank’s asset quality, as we take into account the bank’s high exposure to stressed sectors and overall weak macro environment. Hence, we recommend a Neutral rating on the stock.