Allahabad Bank Ltd
Recommendation: Hold
Price target: Rs.109
Current market price: Rs.94
Allahabad Bank reported a net profit of Rs275.8 crore for Q2FY2014. The same was higher than our estimate largely due to higher recoveries from the written-off accounts (Rs468 crore vs Rs127 crore in Q2FY2013) leading to a 130.4% year-on-year (Y-o-Y) growth in the non-interest income.
Allahabad Bank’s results were better than expected though the concerns on the NIM and asset quality persist. In view of the higher non-interest income growth in Q2FY2014, we have revised our estimates and expect the bank’s earnings to grow at a compounded annual growth rate (CAGR) of 18.1% YoY. We also revise the price target to Rs109 (0.75x FY2015 adjusted book value). Though the valuation seems attractive at 0.65x FY2015 book value, but the subdued return ratios (return on asset [RoA ]of 0.6%), the equity dilution due to the capital infusion by the government and the volatility in the asset quality remain concerns. We maintain our Hold rating on the stock.
