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Buy Allahabad Bank, target price Rs 248: Kotak Sec

Kotak Securities has given a buy recommendation on Allahabad Bank for a target price of Rs 248.
In Q4, the net interest income of the company grew 55 per cent YoY on the back of a sharp expansion in NIM (49 bps YoY) and strong loan growth (30.6% YoY). However, net profit growth was moderate at 14.7 per cent YoY on the back of higher pension charge..

CASA mix remained stable QoQ at 33.5% at the end of Q4FY11 as compared to 33.3% at the end of Q3FY11. Expansion in margin has come on the back of 103 bps improvement (YoY) in blended yield on assets, while cost of funds rose only 39 bps (YoY).

Gross NPA has remained stable during Q4FY11 both in terms of percentage as well as in absolute terms. However, slippage remained at the elevated levels (annualized slippage at 4.5% during Q4FY11), negative in our view.

“We are slightly revising our earnings estimate downward for FY12E to incorporate 50 bps hike in interest rates offered on saving deposits. At the current market price of Rs 195, the stock is trading at 5.1 times its FY12E earnings and 1.0 times its FY12E ABV. We maintain buy rating on the stock with a target price of Rs 248 (Rs.260 earlier) based on 1.3 times of its FY12E adjusted book value,” the brokerage said in a note.

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