Allahabad Bank - 4QFY2012 Result Update - Angel Broking

For 4QFY2012, Allahabad Bank reported a weak set of numbers with net profit declining by 28.6% on a qoq basis (up 55.4% qoq) to Rs.400cr. The performance was disappointing on both operating (NIMs down by 50bp) and asset quality front (slippage ratio of 4.1%). We recommend an Accumulate rating on the stock.

Asset quality issues lead to higher provisioning and interest rate reversals: FY2012, the bank's advances and deposits grew by a healthy 18.7% yoy (up 10.6% qoq) and 21.0% yoy (up 9.8% qoq) respectively. Accretion in current account deposit picked up during 4QFY2012 with a qoq growth of 9.4% (up 10.2% yoy). Savings account growth was also healthy at 5.9% qoq (up 11.8% yoy). The asset quality of the bank took a hit during 4QFY2012 leading to significant amount of interest reversals. The yield on advances consequently declined by 19bp qoq which coupled with a 54bp qoq increase in cost of deposits (moderation in CASA growth during FY2012) led to margins declining by a sharp 50bp qoq during 4QFY2012. The fee income for the bank remained sluggish declining by 35.1% yoy to Rs.296cr. Slippages for the quarter rose from Rs.596cr witnessed in 3QFY2012 to Rs.963cr in 4QFY2012 (annualized slippage ratio of 4.1%). Management attributed around 80% of the slippages to agri (Rs.276cr) and SME segments (Rs.400cr).

Outlook and valuation: Positives for Allahabad Bank include moderate CASA ratio of 30.5% and healthy NIMs (3.2% even after accounting for sharp fall in 4QFY2012 due to one-off interest reversals). The bank' asset quality has come under pressure in 2HFY2012 and we remain concerned on the bank's asset quality given it has the highest yield on advances amongst other banks. However, considering the low valuations (0.6x FY2014 ABV) post the recent sharp decline in stock price, we recommend an Accumulate rating on the stock with a target price of Rs.166.

Source : Equity Bulls

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