Andhra Bank reports higher NIMs in Q2FY18; Hold | Financial Results | Andhra Bank Q2FY18 | Stock Recommendation |Hold :

Andhra Bank reported higher NIMs at 3.21% (10bps y-o-y & 9bps q-o-q) but better operational performance (cost to income ratio of 38% (-792bps y-o-y & 43bps q-o-q) resulted in 24% y-o-y & -5% q-o-q increase in PPOP. Other Income declined by -22% q-o-q & 3% y-o-y to INR 5.9bn, GNPA remained flat at 13.33% (6bps q-o-q) and credit growth stood at 3% q-o-q and 11% y-o-y. Higher credit cost of INR 16.7bn (74% y-o-y & 28% q-o-q resulted in a PAT loss of INR 3.85bn. We recommend a HOLD on the stock with a TP of INR 68 in 16 months, implying a multiple of 0.4x P / BV on FY19E BV of INR 170.



– Asset quality remained stable during the quarter

– Credit growth to be driven by RAM credit

– Better Operating performance led by lower opex

Outlook & Valuation

With Tier 1 capital of 8.5% as against 8.0% required by RBI, QIP of INR 10bn will boost credit growth going forward. However, equity dilution would be done at weaker multiples. We expect bank to improve their PCR which will result in higher credit cost and adversely impact the earnings and keep return ratios subdued (0.3% ROA & 5.9% ROE) for FY19E. Faster resolution of stress assets remain a key monitor able. Given the weak operating environment, we would like to wait and watch the developments of the bank in terms of asset quality and credit growth going ahead. We maintain our HOLD rating on the stock with a TP of INR 68 in 16 months, implying a multiple of 0.4x P/BV on FY19E BV of INR 170.

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