Allahabad Bank?s Q3FY2011 results were higher than our estimates as the profit after tax (PAT) grew by 20.4% year on year (YoY) to Rs416 crore led by a strong increase in the net interest income (NII) and despite a 25% sequential decline in the non interest income. The net interest margin (NIM) of the bank stood at 3.44%, up from 2.97% in Q3FY2010. The asset quality of the bank was stable sequentially as the gross and net non performing assets (NPA) stood at 1.77% and 0.59% respectively. The provision coverage ratio stood stable at 80.22%.
NII growth strong: The NII of the bank grew by 55.7% YoY to Rs1,052 crore. The growth was on the back of a strong increase in margins which grew to 3.44% and a strong growth in advances which grew by 32% YoY to Rs86,837 crore. The current account ? saving account (CASA) of the bank stood at 33.41%, down from 35.41% YoY.
Margins improve: The NIM of the bank improved by 47 basis points YoY to 3.44% as against 2.97% in Q3FY2011 and 3.34% in Q2FY2011. The margin improvement was on the back of yield on advances which grew by 23 basis points sequentially and yield on investments which grew by 21 basis points sequentially. However the cost of deposits also grew by 21 basis points sequentially.
Non interest income disappoints: The non interest income of the bank fell by 25.2% quarter on quarter (QoQ) and 24.2% YoY to Rs257.6 crore during Q3FY2011. The commission income of the bank fell by 18.2% sequentially to Rs174 crore. Treasury Gains also fell by 47.6% sequentially.
Asset quality stable: The asset quality of the bank remained stable sequentially with gross NPA at 1.77% in line with that of Q2FY2011. However the net NPA increased marginally to 0.59% as against 0.56% in Q2FY2011. The provision coverage ratio of the bank stood at 80.22% as against 81% in Q2FY2011. Restructured assets stood at Rs2,751 crore.
Capital infusion to boost profitability: The bank has applied to the government for capital infusion to the tune of Rs1,000 crore. The bank expects to receive the same by March 2011. Currently the bank has a healthy capital adequacy ratio (CAR) of 12.78% of which tier I Capital is to the tune of 8.14%. (excluding unaudited profits of M9FY2011).
Valuation & outlook: The bank has reported higher than expected results during the quarter. However the reduction in the fee income and the fall in CASA during the quarter are the key areas of concern for the bank. Currently the stock trades at 1.1x its FY2012E book value. We will review our estimates and come out with a detailed report shortly.
