Andhra Bank (Q4 FY13)

India Infoline News Service | Mumbai |

Bank is extremely cautious in corporate lending given the high level of delinquencies observed in this segment. Going forward, Retail and MSME will be the key focus areas; reducing the portfolio concentration in corporate segment.

CMP Rs91, Target price Rs95, Upside 4.2%

Andhra Bank’s gross advances grew by 10.9% qoq/18.2% yoy, versus our expectation of 7% qoq/14% yoy. Healthy growth was witnessed across MSME (19.5% qoq/28.4% yoy), Retail (16.6% qoq/26.8% yoy) and Agriculture (14.2% qoq/32.1% yoy) segments. Growth in Corporate Segment was relatively weak at 6.8% qoq/9.1% yoy. Resultantly, Corporate loan book contracted from 54.8% of total advances in FY12 to 50.6% in FY13. Bank is extremely cautious in corporate lending given the high level of delinquencies observed in this segment. Going forward, Retail and MSME will be the key focus areas; reducing the portfolio concentration in corporate segment.

Deposits grew by 10.1% qoq/17% yoy led by strong growth in Retail TDs (10.6% qoq/18.1% yoy) followed by Savings Deposits (9% qoq/14.6% yoy). With relatively slower growth in CASA deposits, CASA ratio declined by 37bps qoq to 25.7% in Q4 FY13. It is expected to improve in the coming quarters with substantial branch addition in CASA accretive locations (Rural and Semi-urban areas). Out of the 51 branches added during Q4 FY13, 35 branches were opened in rural and semi-urban areas.

NIM touched a multi-quarter low of 3.04% in Q4 FY13, down by 31bps qoq, due to 16bps decline in YoA (on account of base rate cut of 25bps and interest reversal pertaining to NPAs) and 16bps increase in CoD. Growth in interest on advances was muted despite of significant growth in loan book mainly because majority of the lending was done during the end of the quarter. NIM is expected to remain under pressure in the near term in anticipation of lending rate cut and persisting stress on asset quality.

Asset quality continued to deteriorate with delinquency ratio rising from 2.1% in Q3 FY13 to 3.7% in Q4 FY13. However, higher recoveries, up-gradations and write-offs barred the GNPA ratio from increasing significantly. GNPA ratio rose by 5bps qoq to 3.7% in Q4 FY13. Out of the total slippages of Rs8.9bn, two industries that contributed significantly were Petroleum (Rs2.6bn) and Engineering (Rs1.1bn). Less-than-commensurate provisioning resulted in further dip in PCR to 49.6%. Resultantly, Net NPA ratio rose by 16bps qoq to 2.45% in Q4 FY13. Outstanding restructured advances stood at 9.7% of total advances compared to 11.5% in the previous quarter. During the quarter, bank added advances worth Rs11.4bn to the restructured portfolio and upgraded loans to the tune of Rs3bn by special provision (as per the RBI guidelines).  ~50% (Rs5.3bn) of the restructuring during the quarter came from the infrastructure sector; of which power contributed Rs4.3bn. Higher exposure to Infrastructure, especially power sector (Rs.166.3bn; 18.4%), continues to be the potential risk for the bank’s asset quality. Other industries that are under stress are Sugar and Iron & Steel.

Non-interest income registered a robust growth of 48.7% qoq driven by substantial trading profit (Rs1,054mn in Q4 FY13 compared to Rs291mn in Q3 FY13) and healthy fee income growth (15% qoq). Significant growth in Opex (19.4% qoq) owing to increase in wage bill resulted in an uptick in C/I ratio by 429bps sequentially to 45.1% in Q4 FY13.

Keeping in view bank’s stressed asset quality, pressure on margin, weak PCR, and lower capitalization (Tier I ratio of 8.5%) we maintain our cautious stance on the bank. Also the requirement of higher provisioning to meet the regulatory requirements is likely to impact bank’s future earnings growth. Thereby, maintain Market Performer rating with target price of Rs95. 

Result table
(Rs mn) Q4 FY13 Q3 FY12 % qoq Q4 FY12 % yoy
Total Interest Income 33,590 32,311 4.0 29,990 12.0
Interest expended (24,056) (22,597) 6.5 (20,851) 15.4
Net Interest Income 9,534 9,714 (1.8) 9,139 4.3
Other income 3,541 2,382 48.7 2,299 54.0
Total Income 13,075 12,095 8.1 11,438 14.3
Operating expenses (5,938) (4,975) 19.4 (4,828) 23.0
Provisions (3,651) (2,850) 28.1 (2,437) 49.8
PBT 3,485 4,271 (18.4) 4,173 (16.5)
Tax (39) (1,700) (97.7) (776) (94.9)
Reported PAT 3,446 2,571 34.0 3,397 1.4
EPS 24.6 18.4 34.0 24.3 1.4
 
Key  Ratios Q4 FY13 Q3 FY12 chg qoq Q4 FY12 chg yoy
NIM (%) 3.0 3.4 (0.3) 3.3 (0.3)
Yield on advances (%) 11.9 12.1 (0.2) 12.3 (0.4)
Yield on investments (%) 7.9 7.9 0.0 7.9 0.0
Cost of Funds (%) 6.9 7.0 (0.1) 6.9 (0.1)
CASA (%) 25.7 26.0 (0.4) 26.4 (0.7)
C/D (x) 0.81 0.80 0.01 0.80 0.01
Non-interest income (%) 27.1 19.7 7.4 20.1 7.0
Non-interest income/Interest exp (%) 14.7 10.5 4.2 11.0 3.7
Cost to Income (%) 45.4 41.1 4.3 42.2 3.2
Provisions/Income (%) 9.8 8.2 1.6 7.5 2.3
BV (Rs) 146.1 145.2 1.0 124.6 21.5
RoE (%) 18.1 13.2 4.9 20.1 (2.0)
RoA (%) 1.0 0.8 0.2 1.1 (0.2)
CAR (%) 11.8 11.9 (0.1) 13.2 (1.4)
Gross NPA (%) 3.7 3.7 0.0 2.1 1.6
Net NPA (%) 2.5 2.3 0.2 0.9 1.5
Source: Company, India Infoline Research

Financial Summary
Y/e 31 Mar (Rs m) FY12 FY13 FY14E FY15E
Total operating income 46,193 48,043 56,233 67,638
yoy growth (%) 12.2 4.0 17.0 20.3
Operating profit (pre-provisions) 28,151 27,671 32,397 39,274
Net profit 13,447 12,891 14,231 17,567
yoy growth (%) 6.1 (4.1) 10.4 23.4





EPS (Rs) 24.0 23.0 25.4 31.4
Adj. BVPS (Rs) 120.2 107.8 114.6 131.7
P/E (x) 3.8 4.0 3.6 2.9
P/ Adj. BV (x) 0.8 0.8
BSE 61.05 [0.10] ([0.16]%)
NSE 61.10 [0.10] ([0.16]%)

***Note: This is a NSE Chart

 

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