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August 3, 2011
Andhra Bank
Performance Highlights
NEUTRAL
CMP Target Price
% chg (qoq) 5.7 (1.7) 23.3 1QFY11 736 510 320 % chg (yoy) 23.7 37.1 20.4
`134 -
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
For 1QFY2012, Andhra Bank posted a strong set of numbers with net profit increasing by 23.3% sequentially (up 20.4% yoy) to `386cr, above our estimates of `329cr, mainly due to lower provisioning than built in by us. The sequential 8bp qoq increase in NIM and stable asset quality were the key highlights of the result. We recommend a Neutral rating on the stock. Loan growth healthy; asset quality remains stable: The banks loan book grew sequentially by 6.0% to `75,711cr; however, deposits declined by 1.4% qoq to `90,901cr. Saving deposits increased marginally by 0.5% qoq; however, current deposits declined by 22.1% sequentially, leading to a 122bp qoq decline in CASA ratio to 27.8%. Yield on advances for the bank rose by 63bp qoq to 12.2% in 1QFY2012, one of the highest in the industry. All deposits that had been picked up at a low cost have not been repriced for the bank yet, leading to cost of deposits rising by relatively lesser 54bp qoq as compared to other banks. Consequently, reported NIM of the bank increased by 8bp qoq. During 1QFY2012, CEB income rose by strong 9.9% qoq to `57cr; however, recoveries and forex income declined by 70.9% and 45.4% sequentially to `4.5cr and `185cr, respectively. Gross NPAs increased by 18.2% qoq to `1,176cr, while net NPAs increased by 23.3% qoq to `337cr. The bank has only switched over accounts worth `25lakh and above to system-based NPA recognition until now. Outlook and valuation: At the CMP, the stock is trading at 0.9x FY2013E ABV compared to its five-year range of 0.8x1.4x one-year forward ABV with a median of 1.14x. The stock looks moderately priced at these levels, but considering the near-term asset-quality concerns because of system-based NPA recognition and hefty exposure to the power sector (~23% of the loan book), we recommend Neutral on the stock. Key financials
Y/E March (` cr) NII % chg Net profit % chg NIM (%) EPS (`) P/E (x) P/ABV (x) RoA (%) RoE (%)
Source: Company, Angel Research
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 58.0 15.5 13.4 13.2
3m (3.2) (1.0)
FY2010 2,195 34.9 1,046 60.1 2.8 21.6 6.2 1.5 1.3 26.0
FY2011 3,221 46.8 1,267 21.2 3.3 22.6 5.9 1.2 1.3 23.2
FY2012E 3,535 9.8 1,268 0.1 3.0 22.7 5.9 1.0 1.1 18.2
FY2013E 3,740 5.8 1,252 (1.2) 2.7 22.4 6.0 0.9 0.9 15.9
Vaibhav Agrawal
022 3935 7800 Ext: 6808 vaibhav.agrawal@angelbroking.com
Shrinivas Bhutda
022 3935 7800 Ext: 6845 shrinivas.bhutda@angelbroking.com
Varun Varma
022 3935 7800 Ext: 6847 varun.varma@angelbroking.com
1QFY12 4QFY11 % chg (qoq) 1QFY11 % chg (yoy) 2,634 2,165 453 5 12 1,724 910 217 158 57 59 4 96 1,127 428 273 155 700 177 117 2 58 523 137 386 26.2 2,363 1,918 409 7 30 1,502 862 299 234 52 65 15 166 1,161 449 298 151 712 303 203 0 100 409 96 313 23.5 11.5 12.9 10.7 (23.9) (61.2) 14.8 5.7 (27.4) (32.6) 9.9 (9.0) (70.9) (42.4) (2.9) (4.8) (8.3) 2.1 (1.7) (41.5) (42.3) (41.8) 27.9 42.7 23.3 273bp 1,865 1,499 357 8 1 1,129 736 208 161 57 48 9 94 944 434 287 147 510 52 17 (0) 35 458 138 320 30.1 41.2 44.4 26.8 (34.4) 857.1 52.7 23.7 4.2 (1.8) 24.6 (51.0) 1.8 19.4 (1.5) (4.8) 5.1 37.1 240.4 574.1 66.8 14.0 (0.7) 20.4 (389)bp
Actual 910 217 1,127 428 700 177 523 137 386
Estimates 899 211 1,110 443 667 198 469 141 329
Var. (%) 1.3 2.7 1.6 (3.4) 4.8 (10.7) 11.4 (2.7) 17.4
August 3, 2011
1QFY12 4QFY11 75,711 90,901 83.3 5,581 19,721 25,302 27.8 13.2 8.9 7.0 12.2 7.7 9.7 6.4 3.8 37.9 1,176 1.6 337 0.5 82.0 1.4 0.4 71,435 92,156 77.5 7,160 19,619 26,779 29.1 14.4 9.7 6.5 11.6 7.4 9.2 5.9 3.7 38.7 996 1.4 274 0.4 83.9 1.4 0.8
% chg (qoq) 1QFY11 6.0 (1.4) 577bp (22.1) 0.5 (5.5) (122)bp (115)bp (77)bp 54bp 63bp 25bp 54bp 52bp 8bp (75)bp 18.2 17bp 23.3 7bp (193)bp (2)bp (37)bp 57,144 74,700 76.5 5,190 16,900 22,089 29.6 13.3 7.8 5.5 10.9 6.8 8.6 5.2 3.7 46.0 579 1.0 170 0.3 85.9 1.0 0.1
% chg (yoy) 32.5 21.7 679bp 7.5 16.7 14.5 (174)bp (2)bp 112bp 153bp 134bp 90bp 116bp 118bp 5bp (802)bp 103.1 54bp 98.7 15bp (386)bp 34bp 34bp
August 3, 2011
77.5
8.9 12.3
1.8
6.0 5.2
8.3 4.5
29.6
30.4
28.5
29.1
(3.8)
(1.4)
65.0 60.0
(5.0)
27.8
6.0
70.0
27.0
5.0 -
3.80
3.72
3.60
August 3, 2011
1.8
0.5 -
1.0 0.3
1.3 0.5
1.3 0.5
1.4 0.4
1.6 0.5
1.0
1.5
1.4
75.0
1.4
0.1
0.2 -
1QFY11
2QFY11
3QFY11
4QFY11
1QFY12
17.7 14.7
20.0 10.0
(0.2)
287
260
260
298
273
46.0
42.1
39.7
38.7
25 (50)
(10.0) (20.0)
10.0 -
37.9
100
(9.4)
(8.3)
20.0
0.5 -
August 3, 2011
Investment arguments
One of the best asset qualities among peers
The banks asset quality is one of the best among PSU banks, with gross NPAs and net NPAs of 1.6% and 0.5% (as of 1QFY2012), respectively, and a healthy coverage ratio of 82.0%, including technical write-offs. Credit cost for the bank is low at 0.5% (as of FY2011) of average assets, though in our view in the near term the bank may see some pressures due to system-based NPA recognition and high interest rates.
Investment concerns
Continual weak performance in fee income and likely drop in margins to be a drag on profitability
During the last four years (FY200711), fee income (non-interest income excluding treasury) has risen at a CAGR of only 12.8% compared to advances growing at a CAGR of 26.5%. This resulted in fee income dropping to 0.8% of average assets (as of FY2011) from 1.1% in FY2007. We expect the weak performance with regards to fee income to continue and, hence, have estimated moderate growth of 11.2% and 14.4% in FY2012 and FY2013, respectively. The bank has one of the highest yields in the industry (12.2% as of 1QFY2012), also reflected in the relatively stronger calculated NIM of 3.3% (as of FY2011). Although reported NIM rose sequentially by 8bp during 1QFY2012, the cost of deposits increased substantially by 63bp qoq to 7.0%. With a further upward repricing of deposits expected in the coming quarters, the banks NIM is likely to be under pressure going forward. The bank also has a relatively weaker liability profile with a calculated CASA base of sub-30% at 27.8%. Accordingly, we have built in a 28bp decline in calculated NIM for FY2012 and a further 31bp decline for FY2013.
August 3, 2011
Earlier estimates FY2012 16.0 20.0 28.0 3.0 1.3 8.0 15.0 1.5 80.0 FY2013 16.0 16.0 27.8 2.7 14.0 13.0 15.0 1.6 75.0
Revised estimates FY2012 16.0 20.0 28.0 3.0 0.2 7.0 14.0 1.6 81.0 FY2013 16.0 16.0 27.8 2.7 13.1 13.0 15.0 1.8 74.0
FY2013 Earlier estimates 3,766 1,036 4,802 2,142 2,660 668 1,992 646 1,346 Revised Var. (%) estimates 3,740 1,016 4,756 2,123 2,634 780 1,854 601 1,252 (0.7) (1.8) (0.9) (0.9) (1.0) 16.8 (6.9) (6.9) (6.9)
Earlier estimates 3,547 909 4,456 1,883 2,572 660 1,912 574 1,338
Revised Var. (%) estimates 3,535 899 4,434 1,866 2,567 756 1,811 543 1,268 (0.3) (1.1) (0.5) (0.9) (0.2) 14.5 (5.3) (5.3) (5.3)
August 3, 2011
Oct-05
Feb-08
Nov-02
Sep-08
May-06
Nov-09
Jun-03
Jan-04
Jun-10
Dec-06
Apr-02
Aug-04
Apr-09
Jan-11
Jul-07
Aug-11
Mar-05
August 3, 2011
Mar-12
Source: Company, Angel Research; Note: *Target multiples=SOTP Target Price/ABV (including subsidiaries); # without adjusting for SASF
August 3, 2011
Income statement
Y/E March (` cr) NII - YoY growth (%) Other income - YoY growth (%) Operating income - YoY growth (%) Operating expenses - YoY growth (%) Pre-prov. profit - YoY growth (%) Prov. & cont. - YoY growth (%) PBT - YoY growth (%) Prov. for taxation - as a % of PBT PAT - YoY growth (%) FY07 1,418 21.3 522 12.5 1,940 18.8 933 8.8 1,007 29.8 222 1.8 785 40.8 247 31.5 538 10.8 FY08 1,340 (5.5) 626 19.9 1,966 1.3 909 (2.6) 1,057 5.0 139 (37.2) 918 16.9 342 37.3 576 7.0 FY09 1,627 21.5 765 22.2 2,392 21.7 1,104 21.5 1,288 21.9 390 179.9 898 (2.1) 245 27.3 653 13.5 FY10 2,195 34.9 965 26.0 3,159 32.1 1,350 22.2 1,810 40.5 374 (4.1) 1,436 59.9 390 27.2 1,046 60.1 FY11 3,221 46.8 897 (7.0) 4,118 30.3 1,705 26.3 2,413 33.3 646 72.8 1,767 23.1 500 28.3 1,267 21.2 FY12E 3,535 9.8 899 0.2 4,434 7.7 1,866 9.5 2,567 6.4 756 17.0 1,811 2.5 543 30.0 1,268 0.1 FY13E 3,740 5.8 1,016 13.1 4,756 7.3 2,123 13.7 2,634 2.6 780 3.1 1,854 2.3 601 32.4 1,252 (1.2)
Balance sheet
Y/E March (` cr) Share Capital Reserves & Surplus Deposits - Growth (%) Borrowings Tier 2 Capital Other Liab. & Prov. Total Liabilities Cash Balances Bank Balances Investments Advances - Growth (%) Fixed Assets Other Assets Total Assets - Growth (%) FY07 485 2,671 41,454 22.2 734 480 1,717 47,541 2,949 1,075 14,301 27,889 26.2 192 1,135 47,541 16.9 FY08 485 2,764 19.3 591 1,115 2,201 4,902 793 FY09 485 3,162 20.1 1,311 2,040 2,081 4,853 434 FY10 485 3,925 77,688 30.8 2,832 3,020 2,392 6,699 4,469 20,881 56,114 27.1 356 1,825 31.9 FY11 560 5,933 18.6 4,620 3,020 2,612 7,184 3,275 24,204 71,435 27.3 317 2,485 20.5 FY12E 560 6,876 20.0 5,527 3,503 3,243 7,188 3,257 FY13E 560 7,803 16.0 6,412 4,064 4,024 8,338 3,779
49,437 59,390
56,592 68,469
14,898 16,911 34,238 44,139 22.8 219 1,542 19.0 28.9 335 1,796 21.0
33,644 39,040 82,865 96,123 16.0 368 2,973 19.6 16.0 415 3,449 16.0
56,592 68,469
August 3, 2011
10
Ratio analysis
Y/E March Profitability ratios (%) NIMs Cost to Income Ratio RoA RoE B/S ratios (%) CASA Ratio Credit/Deposit Ratio CAR - Tier I Asset Quality (%) Gross NPAs Net NPAs Slippages Loan Loss Prov. /Avg. Assets Provision Coverage Per Share Data (`) EPS ABVPS (75% cover.) DPS Valuation Ratios PER (x) P/ABVPS (x) Dividend Yield DuPont Analysis NII (-) Prov. Exp. Adj. NII Treasury Int. Sens. Inc. Other Inc. Op. Inc. Opex PBT Taxes RoA Leverage RoE 3.2 0.5 2.7 0.1 2.8 1.1 3.9 2.1 1.8 0.6 1.2 14.6 17.8 2.6 0.3 2.3 0.2 2.5 1.0 3.5 1.7 1.8 0.7 1.1 16.3 18.0 2.6 0.6 2.0 0.4 2.3 0.9 3.2 1.8 1.4 0.4 1.0 18.1 18.9 2.8 0.5 2.3 0.4 2.7 0.8 3.5 1.7 1.8 0.5 1.3 19.7 26.0 3.2 0.6 2.6 0.1 2.7 0.8 3.5 1.7 1.8 0.5 1.3 18.3 23.2 3.0 0.6 2.3 0.0 2.4 0.7 3.1 1.6 1.5 0.5 1.1 17.2 18.2 2.7 0.6 2.1 0.0 2.1 0.7 2.8 1.5 1.3 0.4 0.9 17.8 15.9 12.0 2.1 2.8 11.3 2.0 3.0 9.9 1.8 3.4 6.2 1.5 3.7 5.9 1.2 4.1 5.9 1.0 3.7 6.0 0.9 3.7 11.1 65.1 3.8 11.9 67.0 4.0 13.5 75.2 4.5 21.6 90.9 5.0 22.6 116.0 5.5 22.7 132.9 5.0 22.4 148.8 5.0 1.4 0.2 1.1 0.2 88.1 1.1 0.2 0.7 0.2 85.6 0.8 0.2 0.6 0.3 78.5 0.9 0.2 0.9 0.4 80.4 1.4 0.4 1.4 0.5 72.5 2.3 0.6 1.6 0.5 81.0 3.1 1.0 1.8 0.5 74.0 34.5 67.3 11.3 10.0 33.6 69.3 11.6 8.5 31.4 74.3 12.2 8.0 29.4 72.2 12.9 7.6 29.1 77.5 13.3 9.0 28.0 74.9 12.8 8.6 27.8 74.9 12.6 8.3 3.3 48.1 1.2 17.8 2.7 46.2 1.1 18.0 2.7 46.2 1.0 18.9 2.8 42.7 1.3 26.0 3.3 41.4 1.3 23.2 3.0 42.1 1.1 18.2 2.7 44.6 0.9 15.9 FY07 FY08 FY09 FY10 FY11 FY12E FY13E
August 3, 2011
11
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
Andhra Bank No No No No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
Ratings (Returns):
August 3, 2011
12