BUSINESS....NEWS...Andhra Bank, TCI

Andhra Bank
Cluster: Cannonball
Recommendation: Buy
Price target: Rs117
Current market price: Rs85

Price target revised to Rs117

Result highlights

For Q1FY2008 Andhra Bank (ANDB) reported a 21.2% year-on-year (y-o-y) growth in its net profit to Rs141.1 crore, driven by a modest operating performance coming on the back of a higher non-interest income and lower provisions.
The net interest income (NII) was up 8% year on year (yoy) to Rs362.1 crore. The bank’s net interest margin (NIM) declined by 25 basis points on a y-o-y basis and by six basis points on a sequential basis (after adjusting for Rs25 crore of one-time income in Q4FY2007).
The non-interest income increased by 33.4% yoy to Rs112.5 crore due to a higher treasury income component as the fee income growth remained flat.
A 13.1% growth in the net income coupled with a moderate 9% y-o-y growth in the operating expenses helped the bank to report an 18.2% y-o-y growth in the operating profit to Rs223.4 crore; the core-operating profit (operating profit excluding treasury and amortisation) grew by 13.3% yoy to Rs227.5 crore.
Provisions and contingencies showed a decline of 68.1% yoy to Rs9.3 crore from Rs29.1 crore, mainly due the absence of a one-time hit of Rs20 crore that the bank had taken during Q1FY2007 on transfer of securities.
Business growth of the bank stood at 24.8% yoy with advances up 27.1% yoy and deposits up 23.3% yoy. Despite the strong growth in the advances the asset quality continues to remain among the best in the industry with the net non-performing assets (NPAs) at 0.19%.
The NIM is expected to stabilise going forward and lead to an improvement in the operating performance. The capital adequacy levels are comfortable at 12.5% with the Tier-I capital adequacy ratio (CAR) at around 9%, which is not a constraint for growth, and asset quality continues to remain among the best in the industry. At the current market price of Rs85, the stock is quoting at 5.8x its FY2009E earnings per share (EPS), 3.2x pre-provision profits (PPP) and 1x book value. We have introduced our FY2009E numbers in this report. The bank is available at attractive valuations, given its low price to book multiple compared with its peers and an average return on equity of 18.5%. We maintain our Buy call on the stock with a revised price target of Rs117.