Andhra Bank (ANDB IN) Slippages lower sequentially

Transcription

1 INSTITUTIONAL EQUITY RESEARCH Andhra Bank (ANDB IN) Slippages lower sequentially INDIA BANKING Quarterly Update 28 July 2015 Andhra Bank s Q1FY16 results were broadly in line with our expectation with net profit of Rs 2.0bn. Revenue growth was below expectation due to lower than expected NII growth (44% yoy on a lower base), and weak contribution from fee and forex income. Consequently, preprovision income (+32% yoy) was below expectation. NIM improved 73bps yoy to 2.87bps due to a decline in cost on funds. The management inched up NPA provisioning in an effort to improve the PCR; however, reversal in provision of restructured loans amounting to Rs 1.8bn reduced overall provisions. Fresh accretion of NPAs were stable sequentially (Rs 7.7bn), but have begun to moderate. The bank restructured spilled over loans of the previous quarter worth Rs 912mn and provided fresh disbursement to of Rs 4.5bn to the restructured accounts. Key highlights of Q1FY16 NII grew 44% yoy (on a lower base) to Rs 11.6bn, below our estimate due to moderate advances growth. NIM improved 87bps yoy to 2.87% (on a lower base), primarily due to 40bps decline in cost of funds to 7.46%, while yields on advances increased by 10bps 10.82%. On a sequential basis, NIM decline 61bps due to decline in yield on advances by 84bps at 10.82%. Non interest income declined 20% yoy to Rs 3.1bn led by weak forex income of just Rs 27.5mn compared to Rs 795mn in Q1FY15. Fee income grew 9.8% yoy to Rs 922mn. While treasury gains amounted to Rs 743mn compared to Rs 954mn in Q1FY15. Operating expenses grew 13% yoy to Rs 6.5bn lower than our expectation of Rs 7.4bn due to lower employee expenses (11% yoy to Rs 3.8bn). Advances growth was slightly moderate at 10.2% yoy ( 3% qoq) due to weak growth in agri credit ( 4.4% yoy). Retail and corporate grew at 12% yoy and 14% yoy respectively, while growth in MSME was very strong at 21% yoy. Deposit grew 4% yoy due to decline in term deposits by 0.6% yoy, while CASA deposits grew 19% yoy, consequently, proportion of CASA deposits improved significantly to 26.9% ( 50bps qoq). As term deposits picks up going forward, CASA ratio is expected to decline. Fresh slippages came in at Rs 7.7bn similar to the previous quarter; however, they have been trending lower since last four quarters. Nevertheless, GNPA increased 44bps qoq due to lower recoveries and up gradations. The bank made higher NPA provisioning to step up the PCR (up 240bps qoq to 61.3%). Consequently, NNPA increased 6bpa qoq to 2.99%. The bank expects to higher recoveries in FY16 due to which it expects GNPA to trend lower. Fresh restructuring of loans due to spill over from previous quarter was at Rs 912mn, and additional disbursements were at Rs 4.5bn. The outstanding restructured book stands at Rs bn (11.6% of advances). The amount of loans that will come out of moratorium in FY16 is Rs 20bn. Outlook & Valuation Andhra Bank has managed to lower its trend in slippages on a sequential basis. The management is hopeful of strong recovery and upgrades from the NPA account, which will contain credit costs and help maintain asset quality. It continues to focus on the agri loans, which should drive NPA recoveries going ahead. We expect earnings CAGR of 39% over FY15 17, and improvement in RoA by 20 bps to 0.6%. At CMP, the stock trades at 0.6x FY16 and 0.5x FY17 adjusted book value of Rs 133. In order to factor in equity dilution below book value, we have reduced the target multiple from 0.9x to 0.8x and value the stock at Rs 106 (earlier Rs 126); continue to maintain Buy rating. BUY (Maintain) CMP RS 71 TARGET RS 106 (+50%) COMPANY DATA O/S SHARES (MN) : 603 MARKET CAP (RSBN) : 43 MARKET CAP (USDBN) : WK HI/LO (RS) : 101 / 61 LIQUIDITY 3M (USDMN) : 2.9 PAR VALUE (RS) : 10 SHARE HOLDING PATTERN, % PROMOTERS : 61.0 FII / NRI : 7.0 FI / MF : 15.8 NON PROMOTER CORP. HOLDINGS : 2.2 PUBLIC & OTHERS : 14.0 PRICE PERFORMANCE, % 1MTH 3MTH 1YR ABS REL TO BSE PRICE VS. SENSEX Apr 13 Apr 14 Apr 15 Andhra Bank Source: Phillip Capital India Research KEY FINANCIALS Rs mn FY15 FY16E FY17E Pre prov ROE (%) Pre prov ROA (%) Net Profit 6,384 9,208 12,407 % growth EPS (Rs) Adj BVPS (Rs) ROE (%) P/E (x) Adj P/BV (x) Source: PhillipCapital India Research Est. Manish Agarwalla ( ) Paresh Jain ( ) Pradeep Agrawal ( ) BSE Sensex Page 1 PHILLIPCAPITAL INDIA RESEARCH

2 Result update (Rs mn) Q1FY16 Q1FY15 yoy growth Q4FY15 qoq growth Interest Earned 42,150 38, , Interest Expended 30,576 30, , Net interest income 11,574 8, , Net interest margins Non interest income 3,142 3, , Total Income 14,716 11, , Total operating expenses 6,461 5, , Payroll costs 3,762 3, , Others 2,700 2, , Pre provision Profit 8,255 6, , Provisions & Contingencies % Operating income PBT 3,225 2, , Provision for Taxes 1,200 1, , % of PBT Net Profit 2,025 1, , Equity 6,029 5, , EPS, Rs Advances Deposits Advances / Deposits (%) Gross NPAs Gross NPAs (%) Net NPAs Net NPAs (%) CAR Total Source: Company, PhillipCapital India Research Page 2 PHILLIPCAPITAL INDIA RESEARCH

3 Financials Income Statement Y/E Mar, Rs mn FY14 FY15 FY16e FY17e Interest on Loans 1,11,138 1,27,418 1,42,708 1,61,260 Interest on Investments 30,082 35,085 37,191 41,654 Others 1,754 1,182 1,324 1,523 Total Interest Earned 1,42,973 1,63,686 1,81,223 2,04,437 Total Interest Expended 1,05,600 1,18,306 1,31,651 1,48,468 Net Interest Income 37,373 45,380 49,573 55,968 Total non interest income 13,328 14,998 16,061 17,391 Total Income 50,702 60,379 65,633 73,359 Personnel Expenses 13,829 16,980 18,847 21,486 Other Expenses 9,271 10,415 11,785 13,037 Total Op expenses 23,099 27,394 30,632 34,523 Net Inc (Loss) before prov 27,602 32,984 35,001 38,836 Provision and contingencies 20,265 20,802 21,847 21,112 Net Inc (Loss) before tax 7,337 12,182 13,155 17,724 Provision for Income Tax 2,982 5,798 3,946 5,317 Net Profit 4,356 6,384 9,208 12,407 Balance Sheet Y/E Mar, Rs mn FY14 FY15 FY16E FY17E Assets Cash & Bal with RBI 94,406 76,638 88,133 1,03,082 Loans, Adv & Int accrued 10,76,442 12,59,547 14,21,088 16,27,483 Investments 4,65,772 4,76,842 5,45,704 6,29,616 Fixed Assets (Net) 4,339 12,636 14,152 15,567 Other assets 32,450 26,040 31,249 37,498 Total Assets 16,73,409 18,51,703 21,00,337 24,13,257 Liabilities Share capital 5,896 6,028 6,617 6,617 Reserves and Surplus 81,478 87,484 99,168 1,09,253 Hybrid Capital 2,000 7,000 3,750 3,750 Debt 28,200 31,201 41,201 51,201 Borrowing 1,01,651 1,14,871 1,26,358 1,44,048 Total Deposits 14,20,832 15,52,973 17,68,692 20,35,545 Other liab incld prov 33,352 45,017 47,422 55,713 Total Liabilities 16,73,409 18,51,703 21,00,337 24,13,257 Source: Company, PhillipCapital India Research Estimates Valuation Ratios FY14 FY15 FY16e FY17e Earnings and Valuation Ratios Pre provision Operating RoAE (%) RoAE (%) Pre provision Operating ROA (%) RoAB (%) EPS (Rs.) Dividend per share (Rs.) Book Value (Rs.) Adj BV (Rs.) Revenue Analysis Interest income on IBA (%) Interest cost on IBL (%) NIM on IBA / AWF (%) Core fee Inc / AWF (%) Portfolio gains / Total Inc (%) Op.Exp / TI (%) Op.Exp / AWF (%) Employee exps / Op exps (%) Tax / Pre tax earnings (%) Asset Quality GNPAs / Gr Adv (%) NNPAs / Net Adv (%) Growth Ratio Loans (%) Investments (%) Deposits (%) Net worth (%) Net Int Income (%) (0.5) Non fund based income (%) Non Int Exp (%) Profit Before Tax (%) (58.6) Net profit (%) (66.2) Asset / Liability Profile Avg CASA/ Deposits (%) Avg Adv / Avg Dep (%) Avg Invst / Avg Dep (%) Incr Adv / Deposits (%) Avg Cash / Avg Dep (%) Capital Adequacy Ratio: Tier I (%) Internal Capital Generation rate (%) NNPAs to Equity (%) Page 3 PHILLIPCAPITAL INDIA RESEARCH

4 Management Vineet Bhatnagar (Managing Director) (91 22) Kinshuk Bharti Tiwari (Head Institutional Equity) (91 22) Jignesh Shah (Head Equity Derivatives) (91 22) Research Automobiles Economics Midap Dhawal Doshi (9122) Anjali Verma (9122) Amol Rao (9122) Nitesh Sharma, CFA (9122) Infrastructure & IT Services Portfolio Strategy Banking, NBFCs Vibhor Singhal (9122) Anindya Bhowmik (9122) Manish Agarwalla (9122) Deepan Kapadia (9122) Pradeep Agrawal (9122) Technicals Paresh Jain (9122) Logistics, Transportation & Midcap Subodh Gupta, CMT (9122) Vikram Suryavanshi (9122) Consumer, Media, Telecom Production Manager Naveen Kulkarni, CFA, FRM (9122) Metals Ganesh Deorukhkar (9122) Jubil Jain (9122) Dhawal Doshi (9122) Manoj Behera (9122) Database Manager Oil&Gas, Agri Inputs Deepak Agarwal (9122) Cement Gauri Anand (9122) Vaibhav Agarwal (9122) Editor Pharma Roshan Sony Engineering, Capital Goods Surya Patra (9122) Ankur Sharma (9122) Mehul Sheth (9122) Sr. Manager Equities Support Hrishikesh Bhagat (9122) Rosie Ferns (9122) Sales & Distribution Corporate Communications Ashvin Patil (9122) Sales Trader Zarine Damania (9122) Shubhangi Agrawal (9122) Dilesh Doshi (9122) Kishor Binwal (9122) Suniil Pandit (9122) Sidharth Agrawal (9122) Execution Bhavin Shah (9122) Mayur Shah (9122) SINGAPORE Phillip Securities Pte Ltd 250 North Bridge Road, #06 00 Raffles City Tower, Singapore Tel : (65) Fax: (65) JAPAN Phillip Securities Japan, Ltd 4 2 Nihonbashi Kabutocho, Chuo ku Tokyo Tel: (81) Fax: (81) THAILAND Phillip Securities (Thailand) Public Co. Ltd. 15th Floor, Vorawat Building, 849 Silom Road, Silom, Bangrak, Bangkok Thailand Tel (66) Fax: (66) UNITED STATES Phillip Futures Inc. 141 W Jackson Blvd Ste 3050 The Chicago Board of Trade Building Chicago, IL USA Tel (1) Fax: (1) Contact Information (Regional Member Companies) MALAYSIA Phillip Capital Management Sdn Bhd B 3 6 Block B Level 3, Megan Avenue II, No. 12, Jalan Yap Kwan Seng, Kuala Lumpur Tel (60) Fax (60) INDONESIA PT Phillip Securities Indonesia ANZ Tower Level 23B, Jl Jend Sudirman Kav 33A, Jakarta 10220, Indonesia Tel (62) Fax: (62) FRANCE King & Shaxson Capital Ltd. 3rd Floor, 35 Rue de la Bienfaisance Paris France Tel (33) Fax : (33) AUSTRALIA PhillipCapital Australia Level 37, 530 Collins Street Melbourne, Victoria 3000, Australia Tel: (61) Fax: (61) INDIA PhillipCapital (India) Private Limited No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai Tel: (9122) Fax: (9122) HONG KONG Phillip Securities (HK) Ltd 11/F United Centre 95 Queensway Hong Kong Tel (852) Fax: (852) CHINA Phillip Financial Advisory (Shanghai) Co. Ltd. No 550 Yan An East Road, Ocean Tower Unit 2318 Shanghai Tel (86) Fax: (86) UNITED KINGDOM King & Shaxson Ltd. 6th Floor, Candlewick House, 120 Cannon Street London, EC4N 6AS Tel (44) Fax: (44) SRI LANKA Asha Phillip Securities Limited Level 4, Millennium House, 46/58 Navam Mawatha, Colombo 2, Sri Lanka Tel: (94) Fax: (94) Page 4 PHILLIPCAPITAL INDIA RESEARCH

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