For Q1FY2010, Allahabad Bank has reported a net profit of Rs302.9 crore, indicating a growth of 224.4% year-on-year (y-o-y).
The profit growth was mainly driven by a healthy top line growth, a spike in treasury gains and a marked-to-market (MTM) write-back during the quarter. The net profit for the quarter is well above our estimate of Rs130.7 crore.
The reported net interest income (NII) stood at Rs629.1 crore, up by a strong 34.3% y-o-y. The increase primarily stemmed from a significant 40-basis-point expansion in the reported net interest margin (NIM) during the quarter.
The reported NIM expanded by 40 basis points y-o-y to 3.0% during the quarter, mainly driven by a 35-basis-point contraction in the cost of funds, as the bank reduced around Rs1,000 crore worth of high-cost bulk deposits during the quarter.
The business of the bank saw a growth higher than that recorded by the industry during the quarter.
The advances grew by a healthy 21.0% while the deposits grew by 22.1% yoy. The current account and savings account (CASA) ratio dipped to 33.7% in Q1FY2010 from 34.6% in Q4YF2009.
Though the asset quality of the bank deteriorated marginally on absolute terms sequentially, the same improved in relative terms.
In absolute terms, the gross non-performing assets (GNPA) grew by just 1.4% yoy to Rs1,093.1 crore. However, the GNPA in percentage terms improved to 1.79% from 1.81% in the previous quarter.
Meanwhile, the net non-performing assets (NNPA) in percentage terms improved by 35 basis points quarter on quarter (qoq) to 0.37% with the provision coverage improving to 80%.
We have fine-tuned our earnings estimate for FY2010 to factor in the new information but maintained our FY2011 estimate.
At Rs87, the stock trades at 3.4x FY2011E earnings per share (EPS), 1.5x FY2011E pre-provisioning profit (PPP) per share and 0.8x FY2011E adjusted book value (ABV) per share.
At the current market price and dividend (of Rs2.5 per share), the stock offers healthy dividend yield of ~3%. We revise our target price to Rs106 from Rs101 earlier and upgrade the stock to BUY.