Allahabad Bank has reported a net profit of Rs224.5 crore in Q4FY2010—down 15% year-on-year (y-o-y) and well below our estimate of Rs282 crore. The underperformance, despite inline net interest income (NII), was a result of a higher than expected provisions during the quarter.
The NII for the quarter stood at Rs742.6 crore, up a healthy 25.3% yoy and in line with our estimate of Rs738 crore. The growth was driven by a robust 12% quarter-on-quarter (q-o-q) growth in the advances and a sequentially stable net interest margin (NIM). Â The reported NIM stood at 3% in the quarter (vs 2.97% during the previous quarter). The bank experienced approx 40-basis-point q-o-q contraction in the yields on advances, which was offset by a nearly equal reduction in the cost of funds, thereby helping the bank maintain a NIM stable on a sequential basis.
The non-interest income declined by 12% y-o-y to Rs402.0 crore, as the treasury income dropped by 75% y-o-y to Rs60.9 crore during the quarter. Importantly, the fee-based income too grew by a muted 3% y-o-y.
The operating expenses during the quarter went up by 11.5% y-o-y to Rs486.7 crore. During the quarter, the bank made an ad-hoc provision to the tune of Rs47 crore towards second round pension liability and that of Rs33 crore towards wage arrears.
The provisions for the quarter came in at Rs297.2 crore, which is up 17.2% y-o-y. The non-performing asset (NPA) provisions went up by 58.6% y-o-y to Rs298.5 crore, whereas the investment depreciation provision stood at Rs32 crore. The provisioning coverage came in at 61.5%, though including the technical write-offs, the same stood at a healthy 78.9%.
The bank’s business grew at a rate well higher than the industry growth rate during the quarter. On a year-on-year (y-o-y) basis, the advances grew by a strong 22%, while the deposits went up by 24.8%. However, on a sequential basis, the advances and deposits grew by approx 12% each. The growth in the advances was broad-based with the micro and small medium enterprises (SME) segment witnessing the highest growth.
The asset quality of the bank improved on relative basis with the gross non-performing assets on a relative basis (%GNPA) contracting by 10 basis points quarter on quarter (qoq) to 1.69% though the absolute GNPA increased by 5% qoq. The bank restructured accounts amounting to Rs440 crore during the quarter, though the total restructured loans came down to Rs3,400 crore, which amounts to 4.7% of the total advances outstanding. Of the total restructured pool, only Rs60 crore have slipped into NPA so far.
The capital adequacy ratio (CAR) of the bank came in at 13.62% as at the end of Q4FY2010 with the tier I CAR at 8.12%. The bank is awaiting capital infusion of Rs1,000 crore from the Government of India, which would provide it with enough headroom to pursue its aggressive growth targets.
At the current market price of Rs165, the stock trades at 4.6x its FY2012E earnings per share (EPS), 2.2x FY2012E pre-provisioning profit (PPP) per share and 0.9x FY2012E absolute book value (ABV) per share. We have tweaked our earnings estimates and are rolling over our valuation to FY2012. We maintain our Buy recommendation on the stock with a revised price target of Rs187.
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