Buy Andhra Bank; target of Rs 178: Padmakshi Financial

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Buy Andhra Bank; target of Rs 178: Padmakshi Financial

Padmakshi Financial Services is bullish on Andhra Bank and has recommended buy rating on the stock with a target of Rs 178 in its June 1, 2011 research report.

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Padmakshi Financial Services is bullish on Andhra Bank and has recommended buy rating on the stock with a target of Rs 178 in its June 1, 2011 research report.

"Andhra Bank, headquartered in Hyderabad, was founded by the renowned freedom fighter, Dr. Bhogaraju Pattabhi Sitaramayya. The Bank got registered on November 20, 1923 and commenced business on November 28, 1923. It has 1659 branches (incl 2 overseas), 25 Extension Counters and all are under Core Banking Solutions (CBS)."

"Bank's total business stood at Rs 1636 bn at the end of FY11 which is a growth of 22% yoy and CAGR of 25% over FY08-11. Deposits stood at Rs 922 bn, a yoy growth of 19% while advances increased by 27% at Rs.714 bn. Credit Deposit ratio therefore stood at 78%. We expect the bank to continue growing its business at 20%+ for FY12 with CAGR of 22% over FY11-13E. Net Interest Margins (NIMs) expanded by 50 bps in FY11 at 3.7% with Net Interest Income growing by 47% yoy to Rs 32.2 bn backed by strong growth in advances. We expect the Net Interest Income to grow at CAGR of 23% during FY11-13E and NIMs to be steady in the range 3.5-3.7%. Cost to Income ratio is down from 53% in FY06 to 41% in FY11. Also, bank is consistently providing for pension and gratuity liability. RoAE and RoAA stood at 23% and 1.3% respectively for FY11 with the earnings growth of 30% CAGR in FY08-11.  The share of CASA deposit stood at 29% registering a growth of 17% in FY11 and CAGR of 20% over FY09-11, due to increasing reach of the bank. The bank has added 75 branches in FY11 taking total branches to 1632. Also, bank is planning to open 100 branches in FY12. Hence we expect the CASA share to rise to 30% by FY12E."

"We believe bank is well capitalized at CAR of 14.4% with Tier I CAR of 9.7% as on Mar 11. CAR gone up by 45 bps mainly because of capital infusion in the form of equity at Rs 157 per share by GOI of Rs ~11.7 bn in 4QFY11 to sustain the growth. Asset quality was marginally impacted where Gross NPA stood at 1.39% and Net NPA at 0.38% in FY11. Considering the consistent growth in advance of 22% for FY12, we expect asset quality to get affected with Gross NPA increasing to 1.44% and Net NPA to 0.41%. Provision coverage ratio stood at 84% for FY11 which is well above the stated norms of RBI. Andhra bank has witnessed a consistent business growth in FY11, improving CASA (~30%), ROE (22-23%), dividend yield (~4%) are the key positives for the bank. Further asset quality may get impacted going forward but the bank is sufficiently providing for the same and we expect banks bottom line to grow at 20% CAGR over FY11-13E. At CMP of Rs 144, stock is trading at 1.1x its FY12E ABV of Rs 132 and 5.2x its FY12E EPS of Rs 28. We initiate a coverage on the Andhra Bank with Buy rating with one year target price of Rs 178 with the upside of 25%," says Padmakshi Financial Services research report.

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To read the full report click on the attachment