Reduce Allahabad Bank; target of Rs 95: Emkay

  Emkay Global Financial Services' report on Allahabad Bank
Earnings for the quarter came in at Rs1.5bn (+30% yoy; but 41% lower than the estimates). While core revenue (flat yoy) and core PPP (+2% yoy) were 6% and 31% above our estimate respectively, higher than expected provisions (Rs8.6bn v/s expectation of Rs7.1bn) and tax rate (62% v/s expectation of 30%) dragged earnings

Slippages were contained at 2.1% of loans (as compared to average run-rate of 5% over last ten quarter and was the lowest since 1QFY12). Recoveries and upgrades were modest, however loan sold to ARCs (2 accounts of INR8.7bn, net reduction of Rs5.9bn) led to GNPL decline of 4% qoq. Fresh restructuring in 1QFY16 was negligible

"The current quarter performance does not necessarily reflect the trend in our view and we expect a gradual improvement in asset quality. We downgrade our earnings estimate by 14% for FY16 while maintain estimate for FY17E. Tier I of ~7.5%, high NNPL/ net-worth of 45% and weak return ratios (RoA of 0.5%) would necessitate capital infusion in near term. Maintain Reduce", says Emkay Global Financial Services research report.

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