Buy Andhra Bank; target of Rs 145: Dolat Capital

Dolat Capital is bullish on Andhra Bank and has recommended buy rating on the stock with a target of Rs 145 in its August 8, 2012 research report.

“Andhra Bank’s net interest income (NII) grew by 3% YoY to Rs 9.4bn in-line with our estimates in Q1 FY13. Margin remained stable on sequential basis to 3.33% from 3.34% in Q4 FY12, however, it declined by 44bps from 3.77% in Q1 FY12. The non-fund income grew by 8.7% YoY to Rs 2.4bn primarily led by multi-fold jump in cash recoveries to Rs 439mn from Rs 45mn in Q1 FY12 and 40% jump in forex gains to Rs 258mn. However, fee income moderately grew by 8.3% to Rs 646mn and treasury income declined by 58.5% to Rs 246mn. The bank’s operating expenses grew merely by 10% YoY growth to Rs 4.7bn which aided its operating profit growth. The bank’s operating profit remains flat at Rs 7bn-6.5% higher than our estimates of Rs 6.6bn.”

“During the quarter, the bank’s asset quality deteriorated with 31.2% rise in GNPA to Rs 23.6bn. GNPA ratio rose by 60bps QoQ to 2.72% while NNPA ratio by 61bps to 1.52%. Provision coverage ratio drifted down sharply to 60% from 71% (including technical write-offs) in Q4 FY12. The bank’s credit cost rose to 77bps as against 53bps in Q4 FY12 on account of higher NPL provisioning; though not adequate as compared to rise in net slippages. In Q1 FY13, Andhra bank’s total business grew 16.6% YoY to Rs1.9tn. Deposits and net advances grew 18.5% and 14.4% to Rs 1.1tn and ` 0.9tn respectively. Credit-deposit ratio declined to 80% from 83% in Q1 FY12 though remained stagnant on sequential basis. On deposits front, CASA share slightly rose to 26.7% from 26.4% in Q4 FY12 and came down from 27.8% in Q1 FY12."

“Owing to the concerns on asset quality, we revise our earnings estimates slightly downward by 2.4% and 0.7% for FY13 and FY14 respectively and reduce our target price by 7% to ` 145. We reiterate our buy rating on the stock. At current price, it quotes at 0.73 xs and 0.66x ABV FY13 and FY14 respectively; based on our target price, the stock would trade at 1.0x adjusted book value FY14,” says Dolat Capital research report.

Non-Institutions holding more than 90% in Indian cos

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