Andhra Bank - 4QFY2012 Result Update - Angel Broking

For 4QFY2012, Andhra Bank posted a moderate set of numbers with net profit increasing by 8.6% yoy (up 12.0% qoq) to Rs.340cr, which were higher than our estimates due to lower effective tax rate than estimated by us. We recommend a Neutral rating on the stock.

Asset-quality pressures moderate but still above normal levels: For FY2012, the bank's business growth remained at moderate levels, with advances growing by 17.1% yoy (5.6% qoq during 4QFY2012) and deposits growing by 14.9% yoy (7.3% qoq during 4QFY2012). Current account deposit accretion picked up during 4QFY2012 with a growth of 15.1% qoq (down 11.0% yoy), while savings accounts growth was also reasonable healthy at 4.1% qoq up 10.0% yoy). The bank's yield on advances declined by 43bp qoq on account of interest rate reversals amounting to Rs.75-80cr. The bank's cost of deposits also increased by 35bp qoq on account of sequential dip in CASA ratio and higher cost of borrowings on bulk deposits during the quarter. Consequently, the reported NIMs of the bank declined by 47bp during 4QFY2012. The bank's asset quality improved during 4QFY2012, with gross and net NPA levels declining by 4.6% and 19.9% qoq. The bank's provision coverage ratio also improved sequentially by 574bp to 71.1%. The slippage levels were higher on a qoq basis (slippage ratio of 2.6% compared to 2.1% in 3QFY2012), however continued momentum in recoveries (Rs.551cr during 4QFY2012) led to lower gross NPA levels.

Outlook and valuation: At the CMP, the stock is trading at 0.7x FY2014E ABV compared to its five-year range of 0.7x-1.4x 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.

Source : Equity Bulls

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