Buy Allahabad Bank - Result Update - Motilal Oswal

Allahabad Bank (ALBK IN; Mkt Cap USD2.1 bn, CMP Rs. 201, BUY)

Allahabad Bank's 4QFY11 PAT grew 15% YoY to Rs.2.6b. Adjusted NII grew by 55% Y-o-Y. However, the same was mitigated by higher provision towards pension liability of existing and retired employees. Loan grew 29% YoY and 9% QoQ.

Asset quality has deteriorated and there were high MTM losses. The gross NPAs increased 7% QoQ while addition to fresh NPAs (slippages) in 4Q were Rs.8.1 bn. In 4QFY11, the bank has written off Rs. 5.3 bn alone, towards NPAs. In percentage terms. Gross NPAs were at 1.74% while Net NPAs were at 0.79%.

Government has recently infused Rs.670 crores by subscribing to its equity shares at Rs.227 (premium of Rs. 217/- per share).

Valuation and view: Business growth has remained strong for ALBK and we expect it to sustain going forward. In FY11, deposits and loan book grew at 24% & 31% respectively, vs growth in Indian banking system at 17% and 23% respectively. Between FY11-13, we expect Allahabad Bank to report loan book growth at 21% CAGR and PAT growth at 23% CAGR, while higher slippages and deterioration in asset quality are the key concerns. However, employee expenses are expected to reduce in FY12 vs FY11, which will take care of the profitability. We expect ALBK to report FY12 EPS of Rs.35, ABV of Rs.185 and FY13 EPS of Rs.44 and ABV of Rs.225. Stock trades at 1.1x FY12 and 0.9x FY13 P/ ABV. Over FY11-13, RoA is expected to be ~1% and RoE 20%. The bank has declared dividend at Rs.6 per share, which offers 3% dividend yield at the current price. We maintain BUY with target price of Rs.264. (1.4x ABV/FY12E)

Source : Equity Bulls

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