Andhra Bank - 1QFY2013 Result Update - Angel Broking

For 1QFY2013, Andhra Bank posted a weak set of numbers with net profit declining by 5.9% yoy (up 6.8% qoq) to Rs.363cr, though higher than our estimates due to lower provisioning expenses (on account of 1075bp qoq dip in PCR) than estimated by us. We recommend a Neutral rating on the stock.

Chunky NPAs lead to higher slippages: For 1QFY2013, the bank's advances grew by 14.4% yoy, while deposits growth was healthier at 18.5% yoy. The performance on the CASA front was moderate with current account deposits growing by 12.3% yoy and savings account deposits growing by 14.0% yoy. The bank's yield on advances declined by 25bp qoq on account of interest reversals and base rate reduction (cut by 25bp on May 01, 2012). However, cost of deposits was also lower by 20bp qoq leading to NIMs remaining flat at 3.3% for 1QFY2013. The growth in CEB income was moderate at 12.5% yoy, however strong recoveries during the quarter (Rs.44cr in 1QFY2013 compared to Rs.4cr in 1QFY2012) led to higher revenues on the fee income front. The treasury income was lower at Rs.25cr compared to Rs.59cr in 1QFY2012 on account of a high base (investments in liquid MFs liquidated in 1QFY2013 post the RBI investment limit of 10% of Net worth). The bank witnessed higher slippage levels of Rs.833cr (annualised slippage ratio of Rs.3.9% compared to 2.7% in 4QFY2012) during 1QFY2013 on account of chunky corporate NPAs (3 accounts worth Rs.560cr). The pressure on the asset quality front led to a sequential increase in both gross and net NPA levels by ~60bp each to 2.7% and 1.5%, respectively. The PCR dipped on a sequential basis by ~1,075bp to 60.4%.

Outlook and valuation: At the CMP, the stock is trading at 0.6x FY2014E ABV compared to its eight-year range of 08-1.4x 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 13% of the loan book) and taking into account 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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