Allahabad Bank’s (ALBK) Q3FY17 PAT of Rs 753 million belied our estimate, on muted revenue momentum despite stable asset quality.
Revenue momentum was tepid with NII slipping >16% y-o-y (on below-industry loan growth and weak NIM), which also strained core profitability. Asset quality was steady, with slippages restricted to R16.5 billion, and GNPLs at R191 billion (flat q-o-q).
On operational front, we anticipate ALBK’s competitive prowess to be hampered by diversion to clean up coupled with capital constraints (which may not be forthcoming for mid-size PSU banks). Hence, we expect operating profitability to remain under pressure.
Stress accretion remained steady for second consecutive quarter as slippages were restricted to R16.5 billion (4.3% versus >10% run rate in H2FY16). On recovery front too, performance was good (R5.5 billion versus R3 billion run-rate in past 6 quarters), especially when compared with other peers.
Consequently, GNPLs stood at R191 billion (flat q-o-q), though in percentage terms GNPLs looked optically higher at 12.51% (12.28% in Q2FY17) on muted loan growth. Factoring in muted revenue, we prune FY17/FY18E EPS by 79%/21%. The stock trades at 0.6x FY19E P/BV.
We maintain ‘HOLD /SU’ with revised TP of R70 (R62 earlier; as we roll forward to FY19E).