CMP: Rs 79 Target Price: Rs 100
Allahabad Bank reported a net profit of Rs3.0bn for Q1FY10, ahead of our expectation, driven by slightly better than expected NII and strong other income. The NII grew by 34.3%yoy to Rs6.3bn driven by 25bps expansion in NIM's and 21%yoy growth in advances. The bank's performance was further supported by strong treasury gains of Rs2.1bn and fee income of Rs1.5bn (up 36.6% yoy).
The bank asset quality improved during the quarter as the gross and net NPA declined to 1.8% and 0.4% from 1.9% and 0.8% in Q1FY09. The bank has used strong treasury gains to jack up provisions as the provision cover improved to 80%. However, with slippages at Rs2.1bn for quarter, the annualized slippages remained high at 1.4%.
At the current valuations, the stock is quoting at 0.7x FY10E ABV and 0.6x FY11E ABV. Our concerns on the restructured assets are partially alleviated as the bank has restructured additional advances of just Rs1.4bn (borrower wise), Hence, we are upgrading the stock to ACCUMULATE with revised price target of Rs100 (0.7x FY11E ABV). We would still be worried about low RoEs.
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