Hold Andhra Bank; target of Rs 100: KRChoksey

KRChoksey has recommended hold rating on Andhra Bank with a target of Rs 100, in its August 13, 2012 research report.

“Andhra Bank reported subdued net earnings of Rs 362 crore which is down 6.2% y-o-y & up 6.5% q-o-q driven by weak core operating metrics. NII grew at a slower pace 3.1% y-o-y & 2.7% sequentially mainly due to interest reversal of Rs 60 crore. NIM was flat q-o-q at 3.33% and could see further moderation by 10-15 bps in FY13. Advance grew at a sluggish pace at 14.4% while deposit growth was above industry average at 18.5%. Muted fee income was offset by the increase in forex income during the quarter which led to 8.5% y-o-y/ 2.5% q-o-q increase in non interest income. Core operating profit ex. treasury profits was up 6.0% y-o-y/ 6.4% q-o-q. The bank has restructured loans amounting to Rs751 crore (0.9% of advances) mainly attributable to Power – non infra segment (Rs407 crore) while slippages were Rs833 crore (4.2%). CASA ratio stood at 26.7%, up 30bps q-o-q. Maintain HOLD.”

“Net interest income saw a tepid growth of 3.1% y-o-y & 2.7% q-o-q to Rs 938 crore driven by flat margins sequentially & an interest reversal of Rs 60 crore during the quarter. Net interest margin stood at 3.33%; will likely to moderate ~ 10-15 bps in FY13 given the higher proportion of wholesale loans and lower CASA ratio. Although the overall CASA is at 26.7%; CASA in Andhra Pradesh stood at ~ 40%. Gross and Net NPAs increased sequentially to 2.72% and 1.52% respectively with provision coverage ratio dropping to 60.4%. Slippages increased 120% q-o-q led by 3 chunky accounts amounting Rs 530 crore coming from the pharmaceuticals, hotels and gems & jewelleries sectors. The management expects 2 of the 3 accounts to get upgraded in the coming quarter. The bank has restructured loans amounting to Rs751 crore mainly coming from the power non infra segment, taking restructured assets to 7.8% of advances.”

“Andhra Bank reported weak earnings and core operating performance during the quarter. Sector line business growth outlook, moderation in margins and higher NPA provision will result 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 expect Andhra Bank to deliver 15.4% CAGR in net earnings over FY12-FY14. Currently stock is trading at 0.7x P/ABV of FY13e adjusted book and 8.1% FY13 dividend yield, attractive valued for medium term perspective. We downgrade to HOLD the stock with revised target price of Rs 100,” says KRChoksey research report. 

FIIs holding more than 30% in Indian cos

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