Andhra Bank - 2QFY2013 Result Update - Angel Broking

Andhra Bank posted a weak operating performance, with a 7.1% yoy decline in its operating profit. However, the bank was able to report a marginal net profit growth of 3.0%, aided by lower provisioning expenses (PCR declined by 723bp qoq). Slippages continued to remain elevated for the bank, which coupled with lower recoveries/upgrades, resulted in persistent asset quality stress.

NIMs decline sequentially; Asset quality faces persistent stress: The bank witnessed a healthy growth in its business during 2QFY2013, with advances and deposits registering a growth of 15.9% and 15.0% yoy, respectively. The healthy advances growth was largely aided by strong growth in agri book and robust growth in SME and Corporate book. CASA deposits grew at 14.0% yoy. The CASA ratio declined by 78bp qoq to 25.9%. Reported NIMs were lower by 20bp qoq to 3.1% on account of an 8bp qoq decline in yield on advances and 29bp sequentially higher costs of deposits. The bank witnessed a robust growth of 37.6% yoy on the non-interest income (excluding treasury) front, which was largely aided by strong growth of 30.8% yoy in fee income and higher recoveries. On the asset quality front, the bank continued to see stress, with both gross and net NPA levels increasing sequentially by 27.8% and 41.6%, respectively. Slippages came in at Rs.771cr, though lower compared to Rs.833cr in 1QFY2013, but remained elevated considering slippages of Rs.853cr in entire 2HFY2012. Rs.530cr of the incremental slippages came out of 3 chunky accounts belonging to pharmaceuticals, hotels and gems & jewelry sector. The management however exuded confidence in upgrading two of these three accounts in the coming quarter. Recoveries/upgrades came in lower at Rs.113cr compared to Rs.142cr in 1QFY2013 and Rs.551cr in 4QFY2012. PCR dipped by a substantial 723bp qoq to 53.2%. The bank also restructured advances worth Rs.451cr, which largely came from infrastructure, iron & steel and textiles sectors. As of 2QFY2013, the total outstanding restructured book stands at Rs.9,077cr (10.6% of total advances). The management has guided for advances worth ~Rs.1,200cr to be in the restructuring pipeline for 2HFY2013, which includes an advance of ~Rs.450cr to Tamil Nadu SEB.

Outlook and valuation: At the CMP, the stock is trading at 0.7x FY2014E ABV compared to its eight-year range of 0.8-1.4x one-year forward ABV with a median of 1.1x. Considering the bank's relatively higher risk exposure, particularly to the power, iron & steel and textiles sectors, 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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