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August 5, 2013
Allahabad Bank
Performance Highlights
Particulars (` cr) NII Pre-prov. profit PAT 1QFY14 1,312 1,022 413 4QFY13 1,056 767 126 % chg (qoq) 24.2 33.2 227.5 1QFY13 1306 956 514 % chg (yoy) 0.5 6.9 (19.6)
NEUTRAL
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Banking 3,363 1.2 191/66 260,529 10 19,164 5,678 ALBK.BO ALBK@IN
`67 -
Allahabad Bank reported a muted operating performance for the quarter, as its NII remained largely flat yoy. Non-interest income grew strongly by 61.9% yoy, as treasury gains more than tripled to `177cr. Operating profit grew at a subdued pace of 6.9% yoy. The bank witnessed significant asset quality deterioration during the quarter, as Gross and Net NPA levels increased sequentially by around 20% each. Consequently, the provisioning expenses for the bank grew by 42.3% yoy and hence, the earnings declined by 19.6% yoy. NIM stable qoq; Slippages remain higher for 1QFY2014: During 1QFY2014, the bank witnessed a healthy growth in its business, as advances and deposits grew at 16.7% and 14.9% yoy, respectively. Overall CASA deposits grew at 14.4% yoy; hence, the CASA ratio remained largely flat yoy to 29.5%. The banks yield on funds declined 22bp qoq to 9.9%, on back of lower yield on advances (44bp qoq). Cost of funds also declined by 22bp qoq to 7.1% and hence, the reported NIM remained stable qoq at 2.8%. The bank witnessed strong growth of 27.4% yoy on the non-interest income (excluding treasury) to `324cr. Fee Income grew at a moderate pace of 12.6% yoy. During the quarter, slippages remained elevated at `1,694cr (annualized slippage rate at 5.2%). Of the slippage during the quarter, eight chunky accounts contributed ~`680cr. Recoveries and Upgrades came in at `399cr as against `460cr in 4QFY2013. As of 1QFY2014, the Gross NPA ratio has reached 4.8%, higher by 280bp yoy and 86bp qoq, while Net NPA has reached to 3.9%, up by 278bp yoy and 68bp qoq. The PCR declined by 2,539bp yoy and 182bp qoq to 48.2%. Additionally, the bank restructured advances worth `339cr, thereby taking its outstanding restructured book to `13,595cr (10.5% of net advances). Going forward, the Management has guided at a restructuring pipeline of `1,500cr, and almost half of these advances are already classified as non-performing in their books. Outlook and valuation: The banks asset quality has come under severe pain over the past five quarters, as Gross NPAs have almost tripled and Net NPA levels have nearly grown four times. Going ahead, we remain concerned on the banks asset quality, as we take into account banks aggressively high yields on advances, its exposures to stressed sectors, overall weak macro environment and recent macro developments. Moreover, the bank has requested a capital infusion of `1,500cr from the Government of India, which is likely to be at book dilutive valuations. Hence, we recommend a Neutral rating on the stock. Key financials (standalone)
Y/E March (` cr) NII % chg Net profit % chg NIM (%) EPS (`) P/E (x) P/ABV (x) RoA (%) RoE (%) FY2012 5,163 28.3 1,867 31.2 3.2 37.3 1.8 0.4 1.1 21.6 FY2013 4,866 (5.7) 1,185 (36.5) 2.6 23.7 2.9 0.4 0.6 11.8 FY2014E 5,315 9.2 1,299 9.6 2.5 26.0 2.6 0.4 0.6 11.8 FY2015E 5,884 10.7 1,503 15.7 2.5 30.0 2.3 0.3 0.6 12.4
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 55.2 20.0 8.3 14.5
3m (2.9) (50.9)
Vaibhav Agrawal
022 3935 7800 Ext: 6808 vaibhav.agrawal@angelbroking.com
Sourabh Taparia
022 3935 7800 Ext: 6872 sourabh.taparia@angelbroking.com
Harshal Patkar
022 3935 7800 Ext: 6847 harshal.patkar@angelbroking.com
1QFY14 4,564 3,407 1,058 38 61 3,252 1,312 501 324 269 177 55 1,813 791 526 266 1,022 446 441 (8) 12 576 163 413 28.3
4QFY13 4,252 3,126 1,098 18 10 3,196 1,056 525 427 257 98 170 1,581 813 545 268 767 622 513 31 78 145 19 126 12.9
% chg (qoq) 7.3 9.0 (3.6) 109.2 498.8 1.7 24.2 (4.4) (24.0) 4.7 80.6 (67.4) 14.7 (2.7) (3.5) (1.0) 33.2 (28.4) (13.9) (125.7) (84.7) 298.1 776.2 227.5 1546bp
1QFY13 4,458 3,297 1,070 72 18 3,152 1,306 310 255 239 55 16 1,615 660 436 224 956 313 270 (96) 139 642 128 514 20.0
% chg (yoy) 2.4 3.3 (1.1) (47.7) 230.3 3.2 0.5 61.9 27.4 12.6 221.8 255.3 12.2 19.9 20.7 18.4 6.9 42.3 63.5 (91.7) (91.4) (10.3) 27.2 (19.6) 834bp
FY2013 17,436 12,745 4,473 159 58 12,569 4,866 1,477 1,224 918 253 306 6,343 2,958 1,986 972 3,385 1,833 1,482 (176) 527 1,553 367 1,185 23.7
FY2012 15,523 11,664 3,716 123 20 10,361 5,163 1,299 1,186 954 113 232 6,461 2,691 1,835 857 3,770 1,607 1,184 221 203 2,163 296 1,867 13.7
% chg 12.3 9.3 20.4 29.7 191.3 21.3 (5.7) 13.7 3.2 (3.8) 123.9 32.1 (1.8) 9.9 8.3 13.5 (10.2) 14.0 25.1 (179.9) 160.3 (28.2) 24.1 (36.5) 997bp
Actual 1,312 501 1,813 791 1,022 446 576 163 413
Estimates 1,153 364 1,517 765 752 340 412 124 288
Var. (%) 13.7 37.9 19.5 3.4 35.9 30.9 39.9 32.2 43.3
August 5, 2013
1QFY14
1QFY13 % chg (yoy) 16.7 14.9 115bp 12.6 14.7 14.4 (13)bp (187)bp (129)bp (55)bp (144)bp (15)bp (97)bp (58)bp (34)bp 279bp 185.1 280bp 313.2 278bp (2539)bp 311bp 27bp
128,941 129,490 180,177 178,742 71.6 8,854 44,288 53,142 29.5 11.1 8.0 7.3 11.0 7.5 9.9 7.1 2.8 43.6 6,164 4.8 4,922 3.9 48.2 5.2 0.9 72.4 9,954 44,975 54,929 30.7 11.0 8.1 7.3 11.4 7.6 10.1 7.3 2.8 51.5 5,137 3.9 4,127 3.2 50.0 9.3 1.7
(0.4) 110,462 0.8 156,867 (88)bp (11.1) (1.5) (3.3) (124)bp 4bp (4)bp (1)bp (44)bp (5)bp (22)bp (22)bp 2bp (782)bp 20.0 86bp 19.3 68bp (182)bp (407)bp (86)bp 70.4 7,865 38,608 46,473 29.6 12.9 9.3 7.8 12.4 7.7 10.8 7.7 3.2 40.8 2,162 2.0 1,191 1.1 73.6 2.1 0.6
20.0
10.0
11.9 17.2
15.8 14.0
20.0 17.4
16.5 12.0
16.7 14.9
29.6
30.3
30.2
30.7
55.0 50.0
22.0 20.0
29.5
5.0 -
Strong growth in non-interest income (excluding treasury); Treasury gains more than triple
During the quarter, the bank witnessed a strong performance on the non-interest income (excluding treasury) front, registering a growth of 27.4% yoy to `324cr. Fee income for the bank grew at a moderate pace of 12.6%, while income from others segment grew to `55cr during the quarter as compared to `15cr in 1QFY2013. Treasury income for the bank during the quarter more than tripled on a yoy basis to `177cr, and aided the overall non-interest income to grow by 61.9% yoy to `501cr.
`399cr compared to `460cr in 4QFY2013. As of 1QFY2014, the Gross NPA ratio has reached 4.8%, higher by 280bp yoy and 86bp qoq, while Net NPA has reached to 3.9%, up by 278bp yoy and 68bp qoq. PCR for the bank has declined by 2,539bp yoy to 48.2% (a sequentially decline of 182bp). Additionally, the bank restructured advances worth `339cr, thereby taking its outstanding restructured book to `13,595cr (10.5% of net advances). Going forward, the Management has guided for a restructuring pipeline of `1,500cr, and almost half of these advances are already classified as non-performing in their books.
2.0 1.1
3.0 2.1
2.9 2.1
3.9 3.2
4.8 3.9
1.0 -
10.0 -
Opex to average assets (%, RHS) 1.7 1.6 1.5 1.8 1.7 1.6 1.5
1.5
1.5
40.8
45.7
48.5
51.5
43.6
1.4 1.3
August 5, 2013
Investment arguments
Healthy retail deposit base
Allahabad Bank has a substantial 61% of its branches in the CASA deposit-rich rural and semi-urban areas, which ensure higher sustainability of the low-cost deposits reservoir, also reflected in the healthy 16.3% CAGR in the banks saving account deposits over FY200613. Although the banks CASA market share reduced by 25bp over FY2006FY2013 to 2.4%, the decline in market share has been one of the lowest in its peer group. The bank is now planning to diversify its branch network by expanding in the economically vibrant states of Gujarat and Maharashtra. The banks better CASA ratio, of ~30% is also likely to help in moderating the expected NIM pressures, emanating from asset quality stress. As compared to peers such as IOB, OBC, and Corporation Bank, the bank has a higher structural CASA share.
Over the past five quarters, the bank has witnessed severe asset quality pain, as Gross NPAs have almost tripled and Net NPA levels have nearly grown four times. As of 1QFY2014, Gross NPA ratio has reached 4.8% as of 1QFY2014 from 1.8% as of 4QFY2012, while Net NPA has reached to 3.9% from 1.0% over the same period. Further, the PCR for the bank has declined by 2,582bp to 48.2% over the same period. Moreover, restructured advances as a proportion of net advances have increased from 5.7% as of FY2012 end to 10.5% as of 1QFY2014. The yield on advances also dropped from 12.43% as of
1QFY2013 to 11.0% as of 1QFY2014, partly on account of interest reversals on heavy slippages. Going ahead, we remain cautious on the banks asset quality, as we take into account banks aggressively high yields on advances, its exposure to stressed sectors, overall weak macro environment and recent macro developments.
Gross NPAs have almost tripled and Net NPA levels have nearly grown four times. Going ahead, we remain concerned on the banks asset quality, as we take
into account the banks aggressively high yields on advances, its exposure to stressed sectors, overall weak macro environment and recent macro developments. Moreover, the bank has requested a capital infusion of `1,500cr from the Government of India, which is likely to be at book dilutive valuations. Hence, we recommend a Neutral rating on the stock.
August 5, 2013
Earlier estimates FY2014 15.0 10.0 30.7 2.5 2.6 12.5 5.0 3.0 55.0 FY2015 15.0 13.0 30.6 2.5 8.1 10.0 5.0 2.8 60.0
Revised estimates FY2014 13.0 9.0 30.9 2.5 3.5 11.0 11.0 3.8 49.5 FY2015 15.0 13.0 30.8 2.5 7.5 10.0 5.0 3.0 55.0
NII Non-interest income Operating income Operating expenses Pre-prov. profit Provisions & cont. PBT Prov. for taxes PAT
Source: Angel Research
Apr-06
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Oct-06
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August 5, 2013
Oct-13
Source: Company, Angel Research; Note:*Target multiples=SOTP Target Price/ABV (including subsidiaries), #Without adjusting for SASF
Company Background
Allahabad Bank is a mid-sized public sector bank, with a branch network of over 2,700 branches and balance sheet of over `2.0lakh cr. The bank's branches are mostly concentrated in the northern (~40%) and eastern (~40%) states of India.
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E-mail: research@angelbroking.com
Website: www.angelbroking.com
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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered
Allahabad Bank No No No No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
Ratings (Returns):
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