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Allahabad Bank (Buy; CMP: Rs. 216)

Robust business growth: Allahabad Bank’s advances grew at 36.8% year on year (YoY) in H1FY2011 the growth rate was much higher than the industry’s. The credit growth was driven by the small and medium enterprise (SME; 57% YoY), corporate (51% YoY) and retail (34% YoY) segments.
Asset quality to remain stable: The bank’s non-performing assets (NPAs) increased during Q2FY2011, mainly due to one-off factors like agri overdues and the slippage of one large account. While recoveries remain strong (Rs400 crore in H1FY2011), the bank has reduced the proportion of restructured loans (to Rs3,030 crore from Rs3,240 crore in Q1FY2011).  
Valuations attractive: The stock has corrected significantly after the bribery scandals and microfinance troubles, and is trading at 1.1x FY2012 book value. It is trading at a discount to its peers like Corporation Bank and Indian Bank. Given the strong buoyancy in the earnings led by improved margins, robust business growth, superior return ratios and relatively better asset quality, we expect Allahabad Bank to trade at a higher valuation. We maintain our Buy recommendation on the stock with a price target of Rs300 (1.6x FY2012 book value).