Buy Allahabad Bank - KJMC Research

Another stellar performance aided by lower tax rate; sharp rise in other income

Allahabad Bank has once again reported strong PAT of Rs 5604.3mn, up 34.8%YoY which was way ahead of our estimates of Rs 4697.6mn. NII for the quarter grew by 31.3% YoY ahead of our/street estimates while NIMs of the bank was maintained at 3.5%. Higher increase in profits was also supported by sharp increase in other income by 35.2% to Rs 3484.1mn. ALBK reported slippages to the tune of Rs 5.9bn while restructured assets stood at Rs 10.5bn. GNPA and NNPA of the bank increased by 9bps and 10bps to 1.9% and 0.8% respectively.

The stock is currently trading at 0.7x of its FY13E ABV. We value the standalone business at 0.9x of its FY13E ABV at Rs 217.6 and maintain our buy rating on the stock with Target Price of Rs 196.

Key Highlights

Lower tax rate boost profits: ALBK has provided lower tax rate of 7.9% since it has not availed tax benefits earlier on certain items like rural advances, priority sector advances, MIS, etc. which has helped to boost profits above our expectation. Also, management has guided in the last concall to avail Rs 3bn of tax benefits which will translate into 21% tax rate for the full year FY12 as compared to 26% in FY11.

Advances grew sequentially; NIMs remain stable: Advances for the quarter grew 4.9% sequentially to Rs 1tn due to strong growth in agri and corporate advances while deposits for the quarter grew by 2.3% sequentially thereby improving CD ratio to 69.1%. In addition, NIMs of the bank remained stable at 3.5%.

Asset quality remains stable, restructured assets rise significantly: Asset quality of the bank remained stable with Gross NPA and NNPA at 1.8% and 0.7% respectively. Slippages during the quarter stood at Rs 5.9bn which includes one big account from footwear industry situated in North of Rs 1.2bn. Major chunk of slippages was from priority sector lending which constituted 60% of the slippages. Management has denied having any exposure to Kingfisher or GTL. The total outstanding restructured advances stood at Rs 38.2bn in which Rs 2.6bn have slipped into the NPL category. Total restructured amount during the quarter stood at Rs 10.5bn. No restructuring took place for the SEBs. However, management has indicated to restructure Rs 6bn of Rajasthan State Electricity Board in the coming quarter.

Other income grew sharply: Other income of the bank grew sharply by 35.4% YoY to Rs 3484mn mainly due to healthy rise in fee income by 43.9% to Rs 2130mn and other non interest income of Rs 844mn. Trading gains stood at Rs 210bn.

CASA remains stable: CASA share remains stable at 30% with savings increased by 2.3% sequentially mainly due to addition of saving account holder in West Bengal employees for which it has received mandate six months back from West Bengal government.

Valuations and Outlook

ALBK has once again delivered strong results on the back of better growth in NII, sharp increase in other income and maintaining stable NIMs. Also, lower tax rate has boosted profits and will further boost the profits of the bank since ALBK will be getting extra benefit of Rs 3bn which it has mentioned in its earlier concall. Asset quality of the bank too remained stable but negativity still remains on the restructured book. The stock is currently trading at 0.7x of its FY13E ABV. We value the standalone business at 0.9x of its FY13E ABV at Rs 217.6 and maintain our Buy rating on the stock with Target Price of Rs 196.

Source : Equity Bulls

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