Allahabad Bank rated ‘Hold’ by Edelweiss; target price Rs 70

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Published: February 16, 2017 4:39:42 AM

Allahabad Bank’s (ALBK) Q3FY17 PAT of Rs 753 million belied our estimate, on muted revenue momentum despite stable asset quality.

Allahabad Bank (PTI)Allahabad Bank (PTI)

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).

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