Recommendation: Buy
CMP = Rs 59 (at the time of this recommendation)
Price target: Rs 90
Key points:
- Andhra Bank reported a not-so-healthy PAT of Rs 77.6 crore indicating a decline of 45% yoy. The net interest income for Q1FY2009 was Rs 346.3 crore, largely flat despite a healthy growth in the advances (23% yoy), as the reported margins contracted by 71 basis points yoy. The non-interest income declined by 9.7% yoy on the back of a treasury loss of Rs 1 crore during the quarter.
- The operating expenses were largely stable at Rs 259.7 crore during the quarter. The expenses were contained primarily due to a 2.9% decline in staff expenses, while other operating expenses grew by 11.9% yoy. Notably the provisions witnessed a significant (more than 10 times) jump and stood at Rs 122.7 crore.
- The asset quality of the bank remained healthy with an improvement on absolute and relative basis. The gross non-performing assets were 1.15%, down 37 basis points yoy, while the net non-performing assets were down by 10 basis points to 0.10%. The growth in the advances though lower as compared to the industry growth, was at healthy 23% yoy, while the deposits registered a growth of 20.6% yoy.
- At the current market price, the stock trades at 5.0x 2009E earnings per share, 2.6x 2009E pre-provisioning profit and 0.8x 2009E book value.
- I maintain a Buy recommendation with a price target of Rs 90.
