- Andhra Bank’s loan book grew by 4.4% sequentially, versus our expectation of 5.2%. Healthy growth was witnessed across all the segments - Agriculture (6.1% qoq); Retail (5.3% qoq); MSME (4.8% qoq) and Corporate (3.1% qoq). Within Retail, gold loans witnessed strong traction reporting a growth of 12% qoq/23.9% yoy. Bank is extremely cautious in corporate lending given the challenges confronted by this segment. Going forward, retail will be the key area of focus. Deposits grew by 3.5% qoq led by strong growth in Retail TDs and Current Deposits. Bulk deposits as a proportion of total deposits continued to shrink to 27% as against 35% earlier. CASA ratio improved by 11bps to 26% owing to 10.9% sequential growth in Current Deposits. It is expected to improve further in the wake of substantial branch addition in CASA accretive locations. ~100 more branches are expected to be opened in Q4 FY13 taking the total branch count to ~1900 by Mar’2013. With advances growing ahead of deposits, C/D ratio improved by 70bps qoq to 80.3% in Q3 FY13. Management has guided credit and deposit growth of 14% and 13% respectively in FY14.
- NIM improved by 22bps to 3.35% in Q2 FY13 due to 20bps decline in CoF (on account of re-pricing of Term Deposits at lower rates and consistent shedding of bulk deposits) and improvement in C/D ratio. NIM is expected to stabilize given the focus on relatively better yielding retail lending and improvement in deposit profile.
- GNPA (3.7%) and NNPA (2.3%) ratio rose by 18bps and 13bps respectively in Q3 FY13. Delinquency ratio improved significantly from 3.6% in Q2 FY13 to 2.1% in Q3 FY13. During the quarter, two large accounts Deccan Chronicle (Rs2bn) and one from restructured portfolio (Rs200mn) slipped into NPA. Outstanding restructured advances stood at 11.5% of total advances. Tamil Nadu SEB was restructured during Q3 FY13. Management expects restructuring of Andhra Pradesh SEB (Rs20bn) and other restructuring of ~Rs4-4.5bn in Q4 FY13. Out of the outstanding restructured advances of Rs103.8, only advances worth ~Rs14bn are cause for concern. PCR declined further by 80bps to 52.4% in Q3 FY13. During the quarter, bank made additional provision of 0.75% on the existing restructured book (as mandated by RBI). Asset quality is likely to remain under pressure in the near term.
- Non-interest income registered robust 8.6% qoq growth. However, on yoy basis it was almost flat. Strong NII and other income growth resulted in improvement in C/I ratio by 160bps sequentially to 41.1% in Q3 FY13. Bank plans to add 100 branches in Q4 FY13 and 200 branches in FY14. Additional operational expenses pertaining to these branch additions will be absorbed by healthy NII growth, sustaining the C/I ratio at current level.
- Currently the Tier I ratio stands relatively lower at 8.1%. Excess SLR of Rs40bn would suffice the capital requirement for FY13. In the beginning of FY14, bank would approach the Government of India for additional funds to meet its planned balance sheet expansion.
- Keeping in view bank’s stressed asset quality, weak PCR, and lower capitalization we do not foresee any material upside in the stock. Thereby, maintain Market Performer rating with target price of Rs122.
|(Rs mn)||Q3 FY13||Q2 FY12||% qoq||Q3 FY12||% yoy|
|Total Interest Income||32,311||31,982||1.0||29,230||10.5|
|Net Interest Income||9,714||8,938||8.7||9,839||(1.3)|
|Key Ratios||Q3 FY13||Q2 FY12||chg qoq||Q3 FY12||chg yoy|
|Yield on advances (%)||12.1||12.0||0.1||12.8||(0.7)|
|Yield on investments (%)||7.9||8.0||(0.1)||7.8||0.1|
|Cost of Funds (%)||7.0||7.2||(0.2)||6.8||0.1|
|Non-interest income (%)||19.7||19.7||(0.0)||19.3||0.4|
|Non-interest income/Interest exp (%)||10.5||9.5||1.0||12.1||(1.6)|
|Cost to Income (%)||41.1||42.7||(1.6)||37.0||4.1|
|Gross NPA (%)||3.7||3.5||0.2||2.4||1.3|
|Net NPA (%)||2.3||2.2||0.1||1.2||1.1|
|Y/e 31 Mar (Rs m)||FY12||FY13E||FY14E||FY15E|
|Total operating income||46,193||48,031||55,605||65,354|
|yoy growth (%)||12.2||4.0||15.8||17.5|
|Operating profit (pre-provisions)||28,151||28,185||32,782||38,651|
|yoy growth (%)||6.1||1.8||11.1||17.9|
|Adj. BVPS (Rs)||120.5||110.8||125.6||143.2|
|P/ Adj. BV (x)||1.0||1.1||0.9||0.8|