KRChoksey has recommended hold rating on Andhra Bank with a target of Rs 120, in its January 29, 2013 research report.
“In 3QFY13, Andhra Bank reported weak net earnings of Rs 257 crore (down 15.2% Y-o-Y & 21.1% Q-o-Q); below our expectation. NII saw de-growth of 1.3% y-o-y & up 8.7% sequentially mainly due to slowing business growth. NIM expanded 22bps Q-o-Q to 3.35% on the back of lower interest reversal and decline in cost of funds. Core fee income increased 19% Q-o-Q thanks to seasonal factors like rent on lockers. Trading gains were flat Q-o-Q to Rs29.1 crore contributing 12% of non interest income. Advance grew at 14% Y-o-Y while deposit growth was slightly higher than industry at 13.9%. The bank has restructured loans amounting to Rs1318 crore (1.5% of advances) mainly attributable to sugar, infrastructure, textiles & iron and steel segment while slippages were Rs453crore (2.0%). CASA ratio stood at 26%, up 11bps q-o-q. Maintain HOLD.”
“Net interest income saw a negative growth of 1.3% y-o-y & up 8.7% q-o-q to Rs 971 crore driven by improvement in margins sequentially & 4.4% Q-o-Q loan book growth. Stable asset yields, lower interest reversal due to decline slippages Q-o-Q and decline in cost of funds were primary drivers for margin expansion. Gross and Net NPAs increased 9.6% Q-o-Q and 10.5% Q-o-Q respectively with provision coverage ratio 39% without technical write-offs. Slippages declined 37% q-o-q to Rs453 crore. Recovery and up gradation remained weak (Rs91 crore vs. 113 crore in Q2FY13) during the quarter. The bank wrote off loans amounting to Rs74 crore during the quarter. The bank has restructured loans amounting to Rs1318 crore mainly coming from sugar, infrastructure, textile & iron and steel, taking restructured assets to 11.5% of advances. Deposits increased 13.9% y-o-y/ 3.5% q-o-q to Rs1,12,448 crore. CASA ratio stood at 26% with healthy saving bank deposit growth 15.6% y-o-y. Loan book saw industry line growth (14% y-o-y/ 4.4% q-o-q) which remain broad based. Corporate loans, SME and retail increased 11.3% y-o-y, 19% y-o-y and 12.4% y-o-y respectively. However the management has shifted focus to retail and identifies rural housing as the growth driver going ahead as it also helps in priority sector lending. The management targets 17-18% credit growth in FY13 led by retail segment & SME (working capital requirements). The bank will add 200 branches in FY13 which will drive CASA growth going forward.”
“Andhra Bank continued to see weak reported earnings and increased asset quality pressure. Sector line business growth outlook and higher NPA provision resulted into muted bottom line. We believe the bank has not adequately provided for higher slippages during the quarter. However, we have increased our credit costs and reduced margins to reflect likely operating environment for the bank. We have cut our FY13 & FY14 earnings estimates by 8.5% and 4.6% factoring in higher credit costs. We expect Andhra Bank to deliver 8.9% CAGR in net earnings over FY12-FY14. Currently the stock is trading at 1x P/ABV of FY14e adjusted book and 4.1x FY14 earnings, fairly valued given the subdued return ratios. We recommend to HOLD the stock with revised target price of Rs 120,” says KRChoksey research report.
FIIs holding more than 30% in Indian cos
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