Buy Andhra Bank; target of Rs 135: SPA Research

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26 Aug, 2025 12:21

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  SPA Research report on Andhra Bank
"Andhra Bank reported mixed set of numbers with its net interest income (NII) and net profit below our estimates, but there was improvement in slippage and NPA profile. Slippage/NPA was driven by agriculture loans because of seasonality while corporate category witnessed decline in NPA levels. We expect NPA to decline in coming quarters due to lower slippages and higher recovery in agriculture loans. PCR improved sequentially to 61.33% from 58.93%. The bank expects to raise ~INR 30bn of capital during FY16 (INR 5bn equity from government, INR 7bn through QIP and INR 18bn through tier 1 or tier 2 bonds). We maintain our BUY rating on the stock with target price of INR 135, based on 1x FY17E ABV."

Outlook & Valuation"We expect Andhra Bank to continue with its strong performance led by above industry credit growth and stable asset quality. However, its NIM will be negatively impacted due to lower interest rate spread and higher borrowings which could get mitigated to some extent as the bank plans to raise capital of ~INR 30bn in FY16, which will cut down its borrowings. We are confident that the bank would be able to improve its asset quality as issues faced by power and infrastructure sector, which constitutes ~10 & 16% of loan book and ~55% of its restructured assets, are being sorted out and many companies are reviving operations as evident from low slippages in restructured accounts and reduction in slippage for five consecutive quarters. We maintain our BUY rating on the stock with target price of INR 135, based on 1x FY17E ABV", says SPA Research report.

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