Allahabad Bank - 2QFY2013 Result Update - Angel Broking

Allahabad Bank reported a disappointing set of numbers for 2QFY2013 with its net profit declining by 52% yoy to Rs.234cr. The lower bottom-line was primarily due to higher interest reversals and higher provisioning expenses during the quarter.

Slippages higher for 2QFY2013; NIMs decline on interest reversals: The business growth of the bank was moderate with advances growing by 15.8% and deposits growing by 14.0% yoy. The CASA ratio of the bank as of 2QFY2013 now stands at 30.2%. The bank's yield on advances declined by 90bp qoq due to interest reversals on account of higher slippages. Consequently, despite lower cost of deposits (down by 24bp qoq) the reported NIMs were down by 37bp to 2.8%. The other income of the bank remained sluggish de-growing by 2.3% yoy. The CEB income was poor de-growing by 20.2% yoy, however the treasury income reported strong gains coming in at Rs.47cr compared to Rs.7cr in 2QFY2012. The slippage figures for 2QFY2013 stood at Rs.1,720cr, thrice the average quarterly run rate. Of these slippages ~Rs.700cr were due to the difference in the opinion in the classification of these accounts between RBI and the bank. The bank had classified these accounts as standard restructured, however the RBI during the financial annual inspection adjudged these accounts as NPAs. The gross NPA increased from 1.98% as of 1QFY2013 to 2.95% for 2QFY2013, while the net NPA increased from 1.1% to 2.1% for 2QFY2013. PCR slipped by a significant 1,277bp to 60.8%.

Outlook and valuation: Positives for Allahabad Bank include moderate CASA ratio of ~30%. The bank's asset quality has come under pressure recently and we remain concerned about it given that it has had one of the highest yield on advances amongst peers in the last couple of years. 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 (0.6x ABV FY2014). We value the bank at 0.7x FY2014 ABV (where most the bank's peers are currently trading) and hence recommend an Accumulate rating on the stock with a target price of Rs.152.

Source : Equity Bulls

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