Stock Market Update on Allahabad Bank for 1QFY2012 with a Neutral recommendation
For 1QFY2012, Allahabad Bankreported 20.4% yoy growth in its net profit to `418cr, ahead of our as well as street’s estimates. Healthy business momentum with relatively lower compression in reported NIMs and stable asset quality were the key highlights of the result. We recommend Neutral on the stock.
Advances momentum sustained with relatively lower dip in NIMs: The bank managed to buck the trend of a sequential decline in advances, displayed so far by its peers. The bank’s advances grew healthily by 5.5% qoq and 30.4% yoy. With the widening differential between the fixed deposit interest rates and savings account rate, the pace of growth in CASA deposits moderated further to 15.6% yoy from 20.7% in 4QFY2011. CASA ratio came off by ~150bp qoq to 32.0% as the bank had lower flows from government-related businesses. Considering the relatively lower share of CASA deposits base, the bank surprised positively by reporting just ~9bp sequential compression in reported NIM to 3.4% despite a 10bp qoq uptick in 4QFY2011. Faster growth in the high-yielding SME segment’s advances and lending rate hikes aided in increasing the overall yield on advances by 87bp qoq. Slippages for the quarter dipped (below normal levels in our view), with the annualised slippage ratio declining to 0.6% from the peak levels of 4.5% in 4QFY2011 (0.7% in 1QFY2011). Overall asset quality improved in 1QFY2012 with gross and net NPAs declining by 2.6% qoq and 20.1% qoq, respectively. Provision coverage ratio, including technical write-offs, improved ~400bp qoq to comfortable 79.9%.
Outlook and valuation: Even taking into account the bank’s reasonably healthy retail deposits base, especially in the eastern hinterland, at 1.0x FY2013E ABV, the stock looks a tad expensive relative to peers. The pending switchover to system-based NPA recognition for agricultural loans (~14% exposure) and small loan accounts is likely to remain a near-term overhang on the stock. Hence, we recommend Neutral on the stock.
