Allahabad Bank - 1QFY2013 Result Update - Angel Broking

For 1QFY2013, Allahabad Bank posted a net profit growth of 22.9% yoy to Rs.514cr, which was higher than our estimates primarily due to lower provisioning expenses than estimated by us.

Slippages back to normalised levels; NIMs remain stable on a low base: The balance sheet of the bank contracted sequentially, with advances de-growing by 0.6% qoq (up 11.9% yoy) and deposits declining by 1.7% qoq (up healthy 17.2% yoy). The performance on the CASA front was subdued with both current account deposits (down 17.5% qoq) and saving account deposits (down 1.3% qoq) declining on a qoq basis. The bank's cost of deposits has been on a rising trend (higher by 49bp qoq at 7.8%) partly on account of moderating CASA ratio. However, the banks yields on advances improved by 41bp qoq owing to a low base (significant amount of interest reversals in 4QFY2012) leading to reported NIMs remaining stable sequentially at 3.2%. The fee income for the bank remained sluggish declining by 2.1% yoy. CEB income growth was reasonably healthy at 15.5% yoy, however the bank's recoveries from written off accounts have remained subdued during the last 2 quarters (Rs.16cr in 1QFY2013 compared to Rs.19cr in 4QFY2012 and Rs.52cr in 1QFY2012), leading to the yoy decline in fee income. The slippage levels for 1QFY2013 were lower (slippage ratio of 2.1%) post the sharp surge witnessed in 4QFY2012 (slippage ratio of 4.1%). PCR dipped by ~50bp sequentially, however remains relatively comfortable at 73.6%.

Outlook and valuation: Positives for Allahabad Bank include moderate CASA ratio of ~30% and healthy NIMs (3.2% as of 1QFY2013). The bank' asset quality has come under pressure recently and we remain concerned on the bank's asset quality given it has the highest yield on advances amongst peers. The stock has been underperforming its peers since the beginning of CY2012 and as a result the valuation multiple for the bank has come down sharply and is currently one of the lowest in the industry (0.5x ABV FY2014). We value the bank at 0.6x FY2014 ABV (where most of the bank's peers are currently trading) and hence recommend an Accumulate rating on the stock with a target price of Rs.150.

Source : Equity Bulls

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