Recommendation: Buy
CMP = Rs 58
Price target: Rs 95
Key points:
- Allahabad Bank reported PAT of Rs 93.4 crore for Q1FY2009, indicating a decline of 53.4% yoy. This decline was mainly because of a substantial increase in the provisions and contingencies which increased to Rs 202.2 crore as at the end of Q1FY2009 compared with Rs 24.5 crore during the same period last year. The sharp rise in the provisions was primarily due to higher investment depreciation to the tune of Rs 264.1 crore. The reported net interest income for the quarter stood at Rs 495.5 crore, up by 9.8% on a yoy basis, mainly driven by a around 24% increase in the advances during the quarter.
- On the margin front, while the margins remained largely stable sequentially, the net interest margin declined by 22 basis points yoy to 2.75% from 2.97%. The growth in advances was slightly below the industry growth during the quarter. However, it still remains healthy at 24% yoy, due to higher demand from the oil marketing companies. Meanwhile, the deposits registered a growth of 16.5% yoy.
- The non-interest income for Q1FY2009 stood at Rs 117 crore, up 23.6% yoy on the back of higher treasury gains. The core fee income increased 6% yoy to Rs 107.3 crore. The gross non-performing assets in percent terms improved by 59 basis points to 1.87%. However, the net non-performing assets in percent terms remained flat at 0.75%. The capital adequacy ratio of the bank stood at 11.68% in Q1FY2009 compared with 12.71% a year ago.
- At the current market price of Rs 58, the stock trades at 3x 2009E EPS, 1.8x 2009E pre-provisioning profit/share and 0.5x 2009E book value/share.
- I maintain a Buy recommendation on this stock with a price target of Rs 95 over next 4-5 months.
