Feb 24, 2011, 02.52 PM | Source: Moneycontrol.com
Fairwealth Securities is bullish on Andhra Bank and has recommended buy rating on the stock with a target of Rs 195 in its February 24, 2011 research report.
, FairWealth Securities |
“Andhra Bank, established in 1923 was nationalized in April 1980. It is a mid size state owned bank with dominance presence in South India It serves customers via a spread of 1557 branches and 859 ATMs across India with total business of Rs. 147682cr by end of Dec 31, 2010. Bank’s loan portfolio includes Corporates (52.5%), MSMEs (15%), Retail (15.3%), Agriculture (15.3%) and others (1.9%). Bank also provides the credit substitutes such as letter of credit and guarantees. In addition, bank provides fee based products and services such as cash management services, insurance services with the JV of Bank of Baroda and L&G Inc. bancassurance services etc.”
“NII up 44% driven by improving margins & strong credit growth, net interest margin (NIM) improved to 3.9% in Q3FY11 v/s 3.35% during the corresponding period last year. Andhra Bank is well capitalized with 12% capital adequacy ratio (CAR) under Basel-II. Including 9MFY11 profit, CAR comes at 13.4%. In addition to this, capital infusion from the GoI through right issue is expected by March 2011 which will further boost its capital base. Asset quality of the bank deteriorated during the quarter as gross NPA increased to 1.41% in Q3FY11 against 0.87% in the corresponding quarter last year. Net NPA also rose to 0.47% as on Dec 31, 2011 from 0.17% y-o-y. Provision coverage ratio of the bank stood at 80.42% higher than the regulatory requirement of 70%, Provisioning of the bank increased because of the higher slippage rate of 0.3%. Bank will have to increase the provision in next couple of quarter.”
“We expect strong growth in profitability given the healthy margins and robust business growth. While slippage rate at 0.3% is lower leading to higher NPA provisions, PCR over 80% provides comfort. Weak asset quality also remains concern. We expect Andhra Bank to report book value of Rs 110 and Rs 134 in FY11 and FY12 respectively. Stock trades at just 1.4x and 1.1x multiple of our estimated FY11E & FY12E adjusted book value. At the CMP, stock offers dividend yield of 4.4% and 5.3% for FY11E and FY12E respectively. Hence, we recommend BUY on Andhra Bank with a target of Rs 195,” says Fairwealth Securities research report.
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