Allahbad Bank KJMC

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					                                                                                                                                                                                   31st Jan, 2012
                      Result Update




Banking                                                                                                  Allahabad Bank                                                                      Buy
                                                                                                         (Another stellar performance aided by lower tax rate; sharp rise in other income )

CMP                                                                                 Rs 156               Allahabad Bank has once again reported strong PAT of Rs 5604.3mn, up 34.8%YoY
                                                                                                         which was way ahead of our estimates of Rs 4697.6mn. NII for the quarter grew by
Target Price                                                                        Rs 196
                                                                                                         31.3% YoY ahead of our/street estimates while NIMs of the bank was maintained at
                                                                                                         3.5%. Higher increase in profits was also supported by sharp increase in other
Key Data                                                                                                 income by 35.2% to Rs 3484.1mn. ALBK reported slippages to the tune of Rs 5.9bn
                                                                                                         while restructured assets stood at Rs 10.5bn. GNPA and NNPA of the bank
Face Value                                                                                         10
Market Cap (Rs in mn)                                                                     74290
                                                                                                         increased by 9bps and 10bps to 1.9% and 0.8% respectively.
Total O/s Shares (in mn)                                                                      476.2      The stock is currently trading at 0.7x of its FY13E ABV. We value the standalone
Free Float                                                                                42.0%          business at 0.9x of its FY13E ABV at Rs 217.6 and maintain our buy rating on the
52 Week High / Low                                                                   240/113             stock with Target Price of Rs 196.
Avg. Monthly Volume (BSE)                                                              117812
Avg. Monthly Volume (NSE)                                                              994354
                                                                                                         Key Highlights
BSE Code                                                                               532480            Lower tax rate boost profits: ALBK has provided lower tax rate of 7.9% since it
NSE Code                                                                                      ALBK       has not availed tax benefits earlier on certain items like rural advances,
Bloomberg Code                                                                       ALBK IN
                                                                                                         priority sector advances, MIS, etc. which has helped to boost profits above
Beta                                                                                              1.06
                                                                                                         our expectation. Also, management has guided in the last concall to avail Rs
Date of Incorporation                                                               Apr 1865
Last Dividend Declared                                                                            60%    3bn of tax benefits which will translate into 21% tax rate for the full year FY12
Six month return                                                                        -22.8%           as compared to 26% in FY11.
Indices                                                                             BSE 200
                                                                                                         Advances grew sequentially; NIMs remain stable: Advances for the quarter grew
                                                                                                         4.9% sequentially to Rs 1tn due to strong growth in agri and corporate
                                                                                                         advances while deposits for the quarter grew by 2.3% sequentially thereby
One Year Price Chart
                                                                                                         improving CD ratio to 69.1%. In addition, NIMs of the bank remained stable
 250                                                                                          1400000



 200
                                                                                              1200000    at 3.5%.
                                                                                              1000000

  150
                                                                                              800000     Asset quality remains stable, restructured assets rise significantly: Asset quality of
                                                                                              600000
 100

                                                                                              400000
                                                                                                         the bank remained stable with Gross NPA and NNPA at 1.8% and 0.7%
  50



   0
                                                                                              200000


                                                                                              0
                                                                                                         respectively. Slippages during the quarter stood at Rs 5.9bn which includes
   Jan-11   M ar-11    Apr-11   Jun-11     Jul-11   Sep-11     Oct-11      Dec-11    Jan-12


                                   Close Price      Total Volume
                                                                                                         one big account from footwear industry situated in North of Rs 1.2bn. Major
                                                                                                         chunk of slippages was from priority sector lending which constituted 60% of
                                                                         Source: Capitaline
                                                                                                         the slippages. Management has denied having any exposure to Kingfisher or
                                                                                                         GTL. The total outstanding restructured advances stood at Rs 38.2bn in
Share Holding Pattern 31.12.2011                                                                         which Rs 2.6bn have slipped into the NPL category. Total restructured
                                                      FIIs
                                                                                FI's/MFs/
                                                                                                         amount during the quarter stood at Rs 10.5bn. No restructuring took place
                                                     12%
                                                                                Banks/Ins
                                                                                   18%                   for the SEBs. However, management has indicated to restructure Rs 6bn of
                                                                                                         Rajasthan State Electricity Board in the coming quarter.
                                                                                    Non Promoter
                                                                                      Corporate
                                                                                        Holding
Promoters                                                                                2%
  58%                                                                   Public & Others
                                                                             10%
                                                                                                         Standalone Financial Snapshot                                                      (Rs in mn)

                                                                                                         Particulars                    FY09         FY10        FY11          FY12E           FY13E
                                           Source: Company, KJMC Research
                                                                                                         Interest Income (Rs)         73647.3      83692.1    110147.0       142301.6        173439.8
                                                                                                         NII (Rs)                     21586.8      26504.9     40224.7        45944.5         54964.6
                                                                                                         PAT (Rs)                      7686.2      12063.8     14231.1        19198.2         24521.7

Vinod Birla                                                                                              EPS (Rs)                        17.2         27.0        29.9           40.3             51.5
Research Analyst                                                                                         ABV (Rs)                       102.0        121.2       145.0          175.4            217.6
Phone-022 4094 5500 Ext. 282                                                                             P/E (x)                          9.3          5.9         5.4             4.0              3.1
Email- Vinod.birla@kjmc.com
                                                                                                         P/ABV (x)                        1.6          1.3         1.1             0.9              0.7
                                                                                                                                                                         Source: Company, KJMC Research

 knaB dabahallA                                                                                                                                                                                           1
                 Other income grew sharply: Other income of the bank grew sharply by 35.4%
                 YoY to Rs 3484mn mainly due to healthy rise in fee income by 43.9% to Rs
                 2130mn and other non interest income of Rs 844mn. Trading gains stood at
                 Rs 210bn.
                 CASA remains stable: CASA share remains stable at 30% with savings
                 increased by 2.3% sequentially mainly due to addition of saving account
                 holder in West Bengal employees for which it has received mandate six
                 months back from West Bengal government.
                 Valuations and Outlook
                 ALBK has once again delivered strong results on the back of better growth
                 in NII, sharp increase in other income and maintaining stable NIMs. Also,
                 lower tax rate has boosted profits and will further boost the profits of the
                 bank since ALBK will be getting extra benefit of Rs 3bn which it has
                 mentioned in its earlier concall. Asset quality of the bank too remained
                 stable but negativity still remains on the restructured book. The stock is
                 currently trading at 0.7x of its FY13E ABV. We value the standalone business
                 at 0.9x of its FY13E ABV at Rs 217.6 and maintain our Buy rating on the
                 stock with Target Price of Rs 196.




knaB dabahallA                                                                                  2
                 Quarterly Result Q3 FY12
                 Particulars (Rs, Mn)             Q3FY12        Q3FY11            yoy (%)
                 Interest earned                 39,118.7      28,554.5               0.4
                 -Interest on advances/bills      29270.5       21309.4               0.4
                 -Income on investments            9352.2        7117.2               0.3
                 -Interest on bal. with RBI         382.3         108.3               2.5
                 -Others                            113.7          19.6               4.8
                 Interest expenses                25313.7       18038.1               0.4
                 Net Interest Income (NII)       13,805.0      10,516.4               0.3
                 Other Income                      3484.1        2576.4               0.4
                 Total income                    17,289.1      13,092.8               0.3
                 Operating expenses               6,989.5        5,208.5              0.3
                 -Employee cost                      4898        3195.9               0.5
                 -Other operating expenses         2091.5        2012.6               0.0
                 Operating profit                10,299.6        7,884.3              0.3
                 Provision for contigencies        4212.1        2358.8               0.8
                 PBT                              6,087.5        5,525.5              0.1
                 Provision for taxes                482.9        1367.5               -0.6
                 Net profit                       5,604.6        4,158.0              0.3
                 Equity                            4762.2        4762.2               0.0
                 EPS                                 11.8            8.7              0.3
                 Ratios (%)
                 Int. exp/Int earned (%)             64.7          63.2                  -
                 Cost/Income ratio (%)               40.4          39.8                  -
                 Emp. cost/Int. Income (%)           12.5          11.2                  -
                 Gross NPAs (Rs)                  18869.6       17151.7              10.0
                 Net NPAs (Rs)                     7959.7        6641.2              19.9
                 Gross NPAs (%)                      1.86          1.77               5.1
                 Net NPAs (%)                        0.79          0.69              14.5
                 ROA (%)                               1.4           1.2             12.1
                 CAR (%)                             11.8          10.3              14.8
                 Advances (Rs)                 1,004,475.7    857,222.0              17.2
                 Deposits (Rs)                 1,452,995.1   1,209,477.1             20.1
                 Business (Rs)                 2,457,470.8   2,066,699.1             18.9
                 CD ratio (%)                        69.1          70.9               -2.5
                 Investments (Rs)               509,743.0     378,375.8              34.7
                 Total assets (Rs)             1,683,191.0   1,391,700.9             20.9
                 Provisions                       10909.9       10510.5               3.8
                 Provision coverage                  57.8          61.3               -5.7
                                                             Source: Company, KJMC Research




knaB dabahallA                                                                                3
     Financial Summary
     Income Statement
    (Year ending March, Rs Mn)                   FY09       FY10       FY11        FY12E                FY13E
    Interest Income
    -Interest/Discount on advances and bills   54943.9    63984.5    82741.9     109119.9             134158.8
    -Income on Investments                     18493.6    19447.5    26702.7      32454.1              38421.5
    -Int. on bal. with RBI                       107.4      251.7      546.9        527.6                659.5
    -Others                                      102.4        8.4      155.5        200.0                200.0
    Total Interest Income                      73647.3    83692.1   110147.0     142301.6             173439.8
    Interest on deposits                       48855.9    53424.1    64983.2      90883.1             109700.3
    Interest on RBI / Inter-bank borrowings      642.8      397.3      482.1        571.4               3382.1
    Others                                      2561.8     3365.7     4456.9       4902.6               5392.8
    Total Interest expense                     52060.5    57187.2    69922.2      96357.1             118475.2
    Net Interest Income                        21586.8    26504.9    40224.7      45944.5              54964.6
    Other Income                               11419.2    15158.9    13704.1      15639.5              18559.3
    Total Income                               33006.0    41663.9    53928.8      61584.0              73523.9
    Employees Cost                              8739.4    10115.7    15576.2      14838.5              18062.2
    Other operating expenses                    5254.9     6062.4     7806.9       8706.4              10137.1
    Total operating expenses                   13994.3    16178.0    23383.1      23544.9              28199.3
    Operating Profit                           19011.7    25485.8    30545.8      38039.1              45324.6
    Provisions and contingencies                8253.8     7769.2    11238.8      10495.0              10142.8
    Profit before tax (PBT)                    10757.9    17716.6    19307.0      27544.1              35181.8
    Tax provisions                              3071.7     5652.8     5075.9       8345.9              10660.1
    Profit After Tax (PAT)                      7686.2    12063.8    14231.0      19198.2              24521.7
    (% change)                                    -21.1      57.0       18.0          34.9                27.7
    EPS                                           17.2       27.0       29.9          40.3                51.5
    Share Capital                               4467.0     4467.0     4762.2       4762.2               4762.2
                                                                               Source: Company, KJMC Research

     Balance Sheet
    (Year ending March, Rs Mn)                  FY09        FY10       FY11        FY12E                FY13E
    Application of funds
    Share Capital                               4467        4467       4762          4762                 4762
    Reserves & Surplus                         54052       63063      80312         95843              116700
    Total Deposits                             849718     1060558   1318872      1595893              1942228
    Borrowings                                  9370       54355      69182         45094               67641
    Other Liabilities and provisions           58872       34550      39736         39676               43493
    Total liabilities                          976480     1216992   1512864      1781268              2174834


    Sources of funds
    Cash and Balances with RBI                 51154       71838      79009         97740              118412
    Bal. with banks                            15214       19844      31265         19882               26504
    Total Advances / Credit                    588018      716049    936249      1142225              1413180
    Total Investments                          296510      384286    432471        481730              570914
    Fixed Assets                               11098       11183      11482         12825               13575
    Other Assets                               14487       13792      22388         26866               32239
    Total assets                               976480     1216992   1512864      1781268              2174824
                                                                               Source: Company, KJMC Research




knaB dabahallA                                                                                                   4
     Key Ratios
    Key Ratios                          FY09      FY10      FY11        FY12E                FY13E
    (A) Efficiency Ratios (%)
    Int. exp/Int. earned                 70.7      68.3      63.5         67.7                 68.3
    Cost / Income                        42.4      38.8      43.4         38.2                 38.4
    C-D ratio                            69.2      67.5      71.0         71.6                 72.8
    Net Interest Margin                   2.5       2.5       3.1          2.9                  2.9

    B) Solvency
    Gross NPAs/ Net Advances (%)          1.8       1.7       1.8          1.8                  1.7
    Net NPAs/ Net Advances (%)            0.7       0.7       0.8          0.7                  0.7

    C) Measures of Investment
    EPS (Rs)                             17.2      27.0      29.9         40.3                 51.5
    BV (Rs)                             111.5     131.7     160.5        193.2                237.1
    Adjusted BV (Rs)                    102.0     121.2     145.0        175.4                217.6
    DPS (Rs)                              2.5       5.5       6.5          7.0                  8.0
    Avg. ROE (%)                         13.9      19.1      18.7         20.7                 22.1
    Avg. ROA (%)                          0.9       1.1       1.0          1.2                  1.2
    P/E (x)                               9.3       5.9       5.4          4.0                  3.1
    P/ABV (x)                             1.6       1.3       1.1          0.9                  0.7
    Dividend yield (%)                    1.6       3.4       4.1          4.4                  5.0


    D) Growth Rates (%)
    Deposits                             18.6      24.8      24.4         21.0                 21.7
    Advances                             18.3      21.8      30.8         22.0                 23.7


    E) Other performance parameters
    No. of branches (No.)              2260.0    2287.0    2415.0       2565.0               2715.0
    No. of employees (No.)            20457.0   20959.0   21227.0     22828.5               24163.5
    Business per branch (Rs mn)         636.2     776.8     933.8       1067.5               1235.9
    Profit per branch (Rs mn)             3.4       5.3       5.9          7.5                  9.0
    Business per employee (Rs mn)        70.3      84.8     106.2        119.9                138.9
    Profit per employee (Rs mn)           0.4       0.6       0.7          0.8                  1.0
                                                                    Source: Company, KJMC Research




knaB dabahallA                                                                                        5
  Mr. Girish Jain                   Executive Director                                                     jaingirish@kjmc.com                              2288 5201 (B)

  Mr. Suresh Parmar                 A.V.P. - Institutional Equities                                        suresh.parmar@kjmc.com                           4094 5551 (D)
  Mr. Vipul Sharma                  A.V.P. - Institutional Sales                                           vipul.sharma@kjmc.com                            4094 5556 (D)


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                                                              Expected returns in absolute terms over a one-year period
                                                              Buy                      -     appreciate more than 20% over a 12- month period
                                                              Accumulate               -     appreciate 10% to 20% over a 12- month period
                                                              Hold / Neutral           -     appreciate up to 10% over a 12- month period
                                                              Reduce                   -     depreciate up to 10% over a 12- month period
                                                              Sell                     -     depreciate more than 10% over a 12- month period

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                                                                                   Member
                   The National Stock Exchange (EQ, WDM)                                               :            SEBI Regn. No. INB 230719932
                   The National Stock Exchange (Derivatives )                                          :            SEBI Regn. No. INF 230719932
                   The Stock Exchange, Mumbai                                                          :            SEBI Regn. No. INB 010719939
                   MCX-SX Currency                                                                     :            INE260719932
                   MCX-Commodity*                                                                      :            MCX/TM/CORP/1772
                   Mutual Fund’s AMFI No.                                                              :            ARN - 2386
                  * Under KJMC Commodities Market India Ltd


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knaB dabahallA                                                                                                                                                                       6

				
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