Recommendations » India

Andhra Bank 3QFY2012 performance highlights and results update

Contributed by Angel Broking

For 3QFY2012, Andhra Bank posted a weak set of numbers with net profit declining by 8.4% yoy (down 4.1%) to Rs.303cr, in-line with our estimates. We recommend a Neutral rating on the stock.

Asset-quality pressures moderate but still above normal levels: The bank’s loan book grew sequentially by 7.6% to Rs.79,169cr (up 20.7% yoy), while deposits grew by 4.5% qoq to Rs.98,680cr (up 20.2% yoy). CASA deposits growth was also healthy at 6.4% qoq (up 12.1% yoy), which was primarily driven by strong 7.1% qoq growth in saving account deposits. The bank’s yield on funds rose by 20bp qoq during the quarter, however cost of funds also rose by 19bp, leading to reported NIM remaining flat sequentially at 3.8%. The bank’s slippages, which had surged sharply during 2QFY2012 to Rs.1,094cr owing to shift to system-based NPA recognition platform (slippage ratio of 6.1%), moderated down to Rs.381cr (slippage ratio of 2.1%) in 3QFY2012. Gross NPA ratio as of 3QFY2012 stood at 2.4% (2.7% in 2QFY2012), while net NPA ratio stood at 1.2% (1.5% in 2QFY2012). Provision coverage ratio (including technical write-offs), which was as strong as 82.0% in 1QFY2012, remained weak at 65.4% for 3QFY2012. The bank restructured ~Rs.1,200cr worth of accounts during 3QFY2012, of which restructuring of GTL contributed ~Rs.1,000cr. The bank also took NPV hit of ~Rs.150cr in the P&L on account of restructuring of GTL.

Outlook and valuation: At the CMP, the stock is trading at 0.8x FY2013E ABV compared to its five-year range of 0.7x–1.3x one-year forward ABV with a median of 1.1x. Considering the bank’s relatively higher risk exposures, particularly to the power sector (more than 16% of the loan book) and that peers of the bank are also trading at similar valuations with similar or better asset quality outlook, we remain Neutral on the stock.