Buy Allahabad Bank - TP Rs.180 - Emkay

Buy, Target Price Rs 180 Drive comfort in provisioning

Incremental provisioning have remained at 80-100% of net slippages: The Bank has historically provided at 80-100% of net slippages for past five years (best amongst its peers). We are factoring 2% slippages / 110bps of provision costs for FY13E.

Restructured portfolio at 4.4% (ex-SEB) , slippages remain lowest amongst peers: Restructured loan portfolio (ex-SEB) stood at 4.4%. Slippages in the restructured asset pool at 13% of opening assets remains lowest amongst peers.

Margins to remain at 3% levels over FY13-14E: Q4FY12 NIM (3.2%, - 50bps qoq) disappointed due to strong growth in balance sheet when interest rates were steeply high. However, a favorable liability mix with improving retail loan book will cushion margins at 3% by FY14E.

Valuations: At CMP, the stock trades at 0.7x / 0.6x FY13 / FY14 ABV. Comfortable Tier-I CAR at 9.1% (8.9% common equity) with 5%+ dividend yield argues well. Maintain positive bias with target price of Rs180.

Near term catalyst and earnings performance: We expect bank to report 17%/14% CAGR in customer assets / profits over FY12-14E. A lower than expected recovery rate, higher slippages in restructured loan portfolio and margin pressures remain key near term catalyst for stock performance.

Source : Equity Bulls

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