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RESULTS REVIEW Share Data Market Cap Price BSE Sensex Reuters Bloomberg Avg. Volume (52 Week) 52-Week High/Low Shares Outstanding Valuation Ratios (Standalone) FY11E EPS (Rs.) +/- (%) PER (x) P / PPP (x) P / ABV (x) Shareholding Pattern (%) Promoter FIIs Institutions Public & Others Holding >1% (Non-Promoter) Genesis Indian Investment Company Ltd - General Sub Fund Life Insurance Corporation of India Bajaj Allianz Life Insurance Company Ltd LIC of India Money Plus LIC of India Market Plus 6.1 5.0 3.1 3.0 2.5 52 14 19 15 27.8 28.9% 6.0x 3.4x 1.5x FY12E 34.9 25.6% 4.8x 2.6x 1.3x Rs. 81bn Rs. 166.95 19,594.8 ADBK.BO ANDB:IN 0.25 Rs. 169.5 / 92.2 485.0 mn
September 17, 2010
Strong operating performance and positive outlook
For the quarter ended 30 June 2010, Andhra Bank reported net profit of Rs. 3.2 bn, indicating healthy growth of 25.1% yoy. This is attributable to the robust growth in net interest income (NII), which grew 66.8% yoy to Rs. 7.4 bn. The net interest margin (NIM) rose to 3.72% in Q1'11, as against 2.85% in Q1'10 due to a decline in the Bank's cost of funds. We expect the NIM to improve in the coming quarters due to the expansion process undertaken by the Bank to widen its presence in the Retail Banking space. The asset quality and coverage ratio of the Bank is still one of the best in the industry. Also, given the improving macroeconomic scenario, we foresee robust growth in the Bank's business in the coming quarters. We believe that the market has not factored in all these positives and as such, we foresee a significant upside in the stock price. Our SOTP valuation suggests a fair value estimate of Rs. 196.6, indicating an upside potential of 17.8% over the current stock price. Thus, we give a Buy rating for the stock. Margins to improve: The NIM rose to 3.72% in Q1'11, as against 2.85% in Q1'10 due to a decline in the Bank's cost of funds, which fell by 94 bps yoy, whereas the yield on funds declined marginally by 10 bps yoy. The Bank's CASA ratio declined marginally yoy, but is still at a healthy level of 29.6% in Q1'11, as against 30.6% in Q1'10. The CASA ratio improved by 14 bps on a sequential basis. We expect the CASA ratio to improve in the coming quarters as the Bank has undertaken an aggressive expansion
200 150 100 50 0
process to increase its retail clientele.
Key Figures (Standalone) Quarterly Data Q1'10 Q4'10 Q1'11 YoY % QoQ% (Figures in Rs mn, except per share data) Net Interest Income Net Operating Income Pre-Prov Optng. Profit 4,414 6,794 3,480 2,562 6,562 9,253 5,272 2,403 7,362 66.8% 9,444 39.0% 5,104 46.7% 3,204 25.1% FY09 FY10 YoY % 34.9% 32.1% 40.5% 60.1% 40.5% 60.2% 20.9%
12.2% 16,269 21,947 2.1% 23,923 31,594 (3.2%) 12,880 18,098 33.4% (3.1%) 33.5% 7.3% 6,531 10,458 46.2% 42.7% 3.03% 3.21% 0.18% 0.17% 26.5 13.5 75.2 37.3 21.6 90.9
Net Profit Cost/Optng. Inc.(%) NIM Net NPA ratio Per Share Data (Rs.) PPP per share Diluted EPS BVPS
Rebased BSE Index
48.8% 43.0% 46.0% 2.85% 3.44% 3.72% 0.14% 0.17% 0.30% 7.2 5.3 80.5 10.9 5.0 90.9
10.5 46.8% 6.6 25.2% 97.5 21.2%
Please see the end of the report for disclaimer and disclosures.
4% of the Bank's loan book.4 bn. 571. The Bank has added 112 branches between Q1'10 and Q1'11. which constitute a majority of the Bank's loan book with a 51.9% share as on 30 June 2010. we expect the asset quality to remain stable in the near term. The Bank recently classified a Rs. of the Bank's retail loan book as on 30 June 2010. driven by credit demand from the Corporate and MidCorporate sectors. we expect a lower slippage ratio from these categories. Healthy growth in advances: Advances grew at a healthy pace of 27.01% in Q1’11. respectively.ANDHRA BANK RESEARCH EQUITY RESEARCH September 17.4 bn loan given to Paramount Airways as a NPA and this will adversely impact the asset quality of the Bank.2% yoy to Rs. Small and Medium Enterprises (MSME) sectors together account for 77. taking advantage of the substantial Indian diaspora living in the country. as it aims to cover 1. This will enable the Bank to undertake aggressive credit expansion in the coming quarters. taking its total branch network to 1560 as of 30 June 2010 and plans to add a total of 120 branches in FY11. 5 bn via certificate of deposits. by focusing on the Housing Loan and Gold segments.25% and recently raised Rs. However.6% of the total restructured loans of the Bank and given the improving macroeconomic scenario.144 villages by March 2012. The Bank is also setting up a banking subsidiary in Malaysia in a joint venture with Bank of Baroda and Indian Overseas Bank.80% in Q1’10 to 1. This will have a positive impact on the Bank's NIM in the near term. Therefore. 0. the asset quality of the Bank is still among the best in the industry. the Corporate and the Micro. 2010 The Bank is significantly expanding its presence in rural India. We expect advances to grow at a healthy pace in the coming quarters. Asset quality to remain stable: Though there was yoy deterioration in the asset quality of the Bank as indicated by its gross NPA ratio. -2- . The Bank has a healthy capital adequacy ratio of 13. which will enable the Bank to further expand its clientele. which constitute 42% and 16%. The Bank is also attempting to expand its retail loan book. which constitutes 15. which increased from 0. Please see the end of the report for disclaimer and disclosures.
4 bn in Q1'11. 571. This is attributable to its robust growth in NII. However. which fell by 94 bps yoy.9% in Q1'11.1 bn in Q1'11. 571. the Bank's other income from core operations.72% in Q1'11.4 bn and the NIM rose to 3.4 bn.4 bn. Total restructured accounts stood at Rs. whereas the yield on funds declined marginally by 10 bps yoy.2 bn.3% of the Bank's loan book. 2.4 bn. 0. consisting predominantly of feebased income.4%).6% yoy to Rs.85% in Q1'10. The Bank's loan book is well-diversified across industries with the largest exposure towards the Power sector.0 bn in Q1'11. The sharp rise in the NIM was due to a decline in the Bank's cost of funds. • There was yoy deterioration in the Bank's asset quality as indicated by its gross NPA ratio. 2010 .30% in Q1’11. which grew 66. The Corporate and Mid-corporate sectors constitute a majority of the Bank's loan book with 51.14% in Q1’10 to 0.9% yoy to Rs. followed by Agriculture (15.01% in Q1’11. indicating a healthy growth of 25. This was due to a decline in the profit on the sale of investments. 30. • The robust growth in NII was due to the healthy growth in advances and the Bank's NIM.80% in Q1’10 to 1.8% yoy to Rs. The credit-to-deposit ratio rose to 76.2% yoy to Rs.0% in Q1'10. which increased 27.5%) and Retail Credit (15. as against 74.0% yoy to Rs.9% in Q1'11.9% share. The net NPA ratio also increased from 0.2% yoy. 1. The Bank's CASA deposits grew at a healthy pace of Please see the end of the report for disclaimer and disclosures. Andhra Bank reported net profit of Rs. which fell 63.1% yoy. • The Bank's other income declined by 12. Advances grew 27. 3.9% of the Bank's loan book in Q1'11. advances grew by 27.2% yoy to Rs. as compared to deposits that grew 22. The provision coverage ratio stood at 85. -3September 17. rose 48. as against the RBI's mandatory requirement of reaching 70% by 30 September 2010. • The Bank’s deposits grew at a healthy pace of 22. which represents about 5.6% yoy to Rs. • There was a robust growth in advances in Q1’11. 747.6% yoy. which increased from 0. which accounted for 20.ANDHRA BANK RESEARCH EQUITY RESEARCH Result Highlights • For the quarter ended 30 June 2010.5 bn. as against 2. 7.
Our fair value estimate of the standalone bank is Rs. The Bank's CASA ratio declined marginally yoy from 30.5% yoy to Rs. 6. as compared to 9. The Tier-I capital ratio stood at 7. • The Bank's CAR declined yoy.0% cost of equity and a 9.ANDHRA BANK RESEARCH EQUITY RESEARCH September 17.4.0% 202 190 206 193 210 196 215 200 221 205 17. 220.4% 16.6.9% 10. Our final SOTP valuation of Rs. assuming a 17. we give a Buy rating to the stock.6% in Q1'10 to 29.6% in Q1'11.8% in Q1'11. -4- .5% 179 182 184 187 191 18.39 8. however.3% in Q1'11.4% 9. 167. 5. 196. 2010 18.9% 9.3 in Q1'11.4% 8.0% 170 172 174 176 178 Please see the end of the report for disclaimer and disclosures. versus 14. Sensitivity Analysis of the Estimate of the Standalone entity 196.0% 216 220 226 232 240 Cost of Equity (%) 16. 196. Hence.5% 17. The standalone Bank has been valued by using the threestage Discounted Equity Cash Flow model.8% from the current market price of Rs. • The basic and diluted EPS for Q1'11 increased to Rs. Valuation We have valued Andhra Bank using the sum-of-the-parts (SOTP) methodology.0.1% in Q1'10.9 bn in Q1'11. the CASA ratio improved by 14 bps on a sequential basis.4% terminal growth rate. but is still at a healthy level of 13.8% in Q1'10.6 provides an upside potential of 17. up from Rs.
960 684.4% 1.5x 2.3% 6.5% Other Liabilities (% of growth) Capital Adequacy ratio 28.193 7.7% 24.6% -37.5% FY10 63.8% 12.5% 67.599 53.098 3.4% 14.2% 26.6% Performance ratio (%) Return on avg. The numbers provided here are standalone.8% 73.1% 711.9% 26.1% 74.222 776.817 19.62 6. ending Mar.620 684.5% 21.850 39.353 17.340 28.492 7.5% 16. assets Return on avg.46 75.174 1.8x 1.981 2.393 28.1% 7.5% 561.8% 72.7% 13.984 21.882 30.2% 13.119.16 113.012 26.0x 1.210 21.8% 58.108 261.480 28.ANDHRA BANK RESEARCH EQUITY RESEARCH September 17.62 130.359 25.8% 21.5% 20.424 117.746 37.2x 2.715 15.7% 40. book value per share FY09 FY10 FY11E FY12E 485 13.265 5.000 35.059 124.4x 6.1% 3.8% 6.3% 27.7% 129.064.7% 2.7% 29.781 21.8% 865.900 20.6% 8.93 485 27.692 111.923 21.4x 2.900 8.9% 13.502 1.178.9% 21.2% 27.2% Please see the end of the report for disclaimer and disclosures.1% 3.1% 18.0% 23.5% 27.1% 33.3% 1.7x 1.205 318.900 10.5% 441.850 31.522 50.16 485 34.4% 2.6% 23.259 28.584 13.0% 18.5% 73.935 25.3x 1.6x 4.4% 26.694 Operating ratios (%) Operating cost to operaing income Operating cost to net income Operating cost to avg.875 169. assets Share Capital Reserves & Surplus Total Equity & Liabilities 4.3x 12.20 485 21.258 16.947 34.594 32.784 13.458 60.1% 26.3% 2.646 31.20 75.9% 20.213 24. Indiabulls research Note: Some ratios are as per Indiabulls definitions and may not match figures declared by the Bank.2% 169.363 24.8% Balance Sheet Cash and due from Banks Investments YoY Growth (%) Advances YoY Growth (%) Fixed Assets (Net) Other Assets Total Assets 52.082 4.9% 23.8% 14.324 967.323 1.729 41.111 13.2% 120.5% 30.7% 5.043 12.901 1.8x 1.1% 30.5% 111.7% 4.837 26.117 21.345.9% 3. net worth Valuation ratios (x) P/PPP P/E P/B P/ABV Per share data (INR) Shares outstanding (mn) EPS Book value per share Adj.9% 1.917 859.897 1.345.512 467.850 58.250 903.281.93 90.417 30. 2010 Income Statement (Yr.692 4.6% 37.850 50.188 25.8% 76.9% 9.0% 7.1% 1. 31) Interest Income Interest Expense Net Interest Income YoY Growth (%) Other Income Total Net Income YoY Growth (%) Operating Expense Pre-Provisioning Profit Provisions and Contingencies Profit Before Tax Tax Net Profit YoY Growth (%) Key Ratios FY09 53.119.524 74.3% 28.7% 7.854 24.269 21.2% 1.6% 9.79 113.8x 3.4% 7.810 23.1% 13.2x 4.047 Balance Sheet ratios (%) Advances growth Deposits growth Advances to deposit Investment (% of deposit) Investment (% of asset) Liquid assets (% of assets) Other Assets (% of deposit) Borrowings (% of advances) Customer Deposits YoY Growth (%) Borrowings YoY Growth (%) Other Liabilities Total Liabilities 593.059 4.838 67.810 648.867 31.5% 13.654 23.135 27.5x 7.7% 11.299 24.880 3.531 13.677 208.295 27.047 Source: Bank data.246 903.557 18.036 40.8% 42.740 14.450 6.5% 24.3% 10. 46.035 1.8% -7. -5- .9% FY12E 102.096 1.495 18.358 3.0% 1.424 4.1% FY11E 81.477 16.0% 1.56 90.5x 1.3x 1.92 130.0% 23.5% 27.
The Report should not be reproduced or redistributed to any other person or person(s) in any form. financial situations. The value of. This report is based upon information that we consider reliable. and income from investments may vary because of changes in the macro and micro economic conditions. 3989666 -6- . Gurgaon . Any opinions expressed here in reflect judgments at this date and are subject to change without notice. In addition.O. associates. Indiabulls Securities Limited (ISL) and any/all of its group companies or directors or employees reserves its right to suspend the publication of this Report and are not under any obligation to tell you when opinions or information in this report change. Past performance is not necessarily a guide to future performance. Plot No.448-451. The information given herein should be treated as only factor. while making investment decision.). Indiabulls (H. directly or indirectly related to specific recommendations or views expressed in this report. No part of this material may be duplicated in any form and/or redistributed without Indiabulls Securities Limited prior written consent. Indiabulls Securities Limited recommends that investors independently evaluate particular investments and strategies. It is for the general information of clients of Indiabulls Securities Limited. is or will be. or needs of individual clients. which is in violation of rules and regulations of National Stock Exchange or Bombay Stock Exchange. Haryana. Past performance is not a guide for future performance. Neither Indiabulls Securities Limited nor any of its affiliates. Indiabulls Securities Limited shall not be responsible for any transaction conducted based on the information given in this report. but we do not represent that it is accurate or complete. You are advised to independently evaluate the investments and strategies discussed herein and also seek the advice of your financial adviser. 2010 Disclaimer This report is not for public distribution and is only for private circulation and use. Ph: (0124) 3989555. The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject stock and no part of his or her compensation was. The report does not provide individually tailor-made investment advice. and it should not be relied upon as such.V. Udyog Vihar. and encourages investors to seek the advice of a financial adviser. Phase . No action is solicited on the basis of the contents of this report. This material is for the general information of the authorized recipient. directors or employees shall in any way be responsible for any loss or damage that may arise to any person from any error in the information contained in this report. This report is not to be considered as an offer to sell or the solicitation of an offer to buy any stock or derivative in any jurisdiction where such an offer or solicitation would be illegal.122 001. ISL has no obligation to continue to publish reports on all the stocks currently under its coverage or to notify you in the event it terminates its coverage. It does not constitute a personal recommendation or take into account the particular investment objectives.ANDHRA BANK RESEARCH EQUITY RESEARCH September 17. and we are not soliciting any action based upon it.
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