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Sharekhan maintains BUY on Andhra Bank

Sharekhan maintains BUY on Andhra Bank
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First Published: Thu, May 14 2009. 09 07 AM IST
Updated: Thu, May 14 2009. 09 07 AM IST
Andhra Bank has reported a profit after tax (PAT) of Rs201.2 crore for Q4FY2009, indicating an increase of 61.9% year-on-year (y-o-y).
The same was ahead of our as well as street estimates. The strong bottom line growth was mainly driven by strong treasury gains and lower tax outgo during the quarter.
The net interest income (NII) for Q4FY2009 registered a healthy growth of 22.6% y-o-y and stood at Rs395.3 crore on account of a strong 28.6% year-on-year (y-o-y) growth in the advances.
However, a five-basis-point year-on-year (y-o-y) decline in the net interest margin (NIM; calculated) restricted the overall NII growth.
The non-interest income during the quarter grew by a robust 65% y-o-y to Rs320.4 crore mainly driven by a five-fold increase in the treasury gains during the quarter. However, the income from commissions, exchange & brokerage (CEB) fell by 10.5% on account of a lower income from distribution of insurance products.
In Q4FY2009, the provisions more than doubled to Rs185.6 crore from Rs91.4 crore in Q4FY2008 as the provisions for investment depreciation doubled to Rs101 crore from Rs48 crore during the year-ago quarter.
Moreover, the bank utilised healthy treasury gains to step up its non-performing asset (NPA) provisioning. As a result, the loan loss provisions were high at Rs59 crore vs Rs28 crore in Q4FY2208.
Surprisingly, the asset quality of the bank improved marginally on sequential and y-o-y bases. The gross NPAs (GNPAs) declined by 1.2% y-o-y and by 1.4% quarter-on-quarter (q-o-q).
Meanwhile, the net NPAs (NNPAs) contracted by 8.1% qoq. Notably, the provisions coverage improved to 78.5% from 76.9% in the previous quarter and is one of the best among its peers.
Outlook
We are revising our FY2010 earnings estimate upwards by 8% to factor in the higher loan growth and the higher growth in the fee-based income in view of the fact that the bank’s entire branch network is now under core banking solution (CBS).
We expect the bank’s earnings to grow by 12.1% in FY2011 and at a compounded annual growth rate (CAGR) of 9.5% during the period FY2009-11.
At the current market price of Rs62 the stock trades at 4.3x FY2010E earnings per share (EPS), 2.2x FY2010E pre-provisioning profit (PPP) and 0.7x FY2010E book value (BV).
We maintain our BUY recommendation on the stock with a revised price target of Rs81.
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First Published: Thu, May 14 2009. 09 07 AM IST
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