Domestic Economic Indicators are certainly looking very robust. In this background credit growth is likely to pick up significantly going forward. Banks are likely to be the major beneficiaries of these improving economic fundamentals. Also the impending banking sector reforms and issue of new banking licenses will keep this sector in focus in the share market.
The recent quarter witnessed an outstanding performance by the bank stocks, both public as well as private sector banks.
Andhra Bank, one of the fastest growing public sector banks of the country, came out with a stellar performance for the quarter ended.
The bank reported a net profit of Rs.741.88crores, 32% increase from the previous corresponding quarter. The y-o-y growth in Net Interest Income was at 44.77% and the net interest margin stood at 3.71%. The advances increased by 27.24% and deposits increased by 22.64%. Retail credit rose by 36.69%, MSME advances increased by 46.6% and corporate lending increased by 21.31%.
The bank is well capitalized with CAR of 14.54% and Tier-I capital 10.32%.
The bank is well above the industry level in all parameters. The outlook for growth during this year appears good. Moving ahead, the bank aims at a 25-27% growth in its loan book and NIM at 3.5% this fiscal.
The stock is currently trading at Rs.148. The valuations are quite attractive. We recommend investors to BUY this stock with a target of Rs.210 which is 1.53 times the expected FY 12 adjusted book value. Given the bank’s high ROE we feel this is a very fair Price/Book Value ratio.
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