Buy Andhra Bank - Asset Quality to stabilize - Motilal Oswal

ANDHRA BANK: Met management; Business growth to moderate; FY12E NIM 3.5%+; Asset quality to stabilize; Buy

Bank had reported strong business growth of ~25% YoY with loan growth of 28% and deposit growth of 23% YoY in 3QFY11.

In 4QFY11, on a higher base (10% QoQ growth in 4QFY10) loan growth is expected to moderate to ~22% (5% QoQ growth).

While savings account deposits growth stood healthy at 22% YoY in 3QFY11, moderation in CA deposit growth (flat YoY) led to fall in CASA ratio to 28.5%

While slippages have been higher in 9MFY11, high PCR of 80%+ is comforting.

As we remain cautious asset quality we build in the higher slippage ratio and credit cost in our earning estimates. Strong core operating performance is likely to take care of higher credit cost thus; EPS CAGR is expected to be ~20% over FY10-13E (without considering equity dilution). RoA is expected to be 1.2+% and RoE of ~25% over FY11/13. Stock trades at 1.1x FY12 and 0.9x FY13 P/B. Maintain Buy with target price of Rs195 (1.2x FY13E BV).

Source : Equity Bulls

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