Andhra Bank

 

Bank's 27% Loan Growth Outpaces Industry's 17%; NPAs At A Low Of 0.2%

 

ANDHRA Bank's stock price has jumped by 27% since start of 2010, while Nifty has remained by and large flat. The stock price had a dismal run in the past two months of 2009, where it underperformed Nifty.

   With the latest upsurge, it is back on track and this is attributable to the strong financial performance reported by the bank in FY10. The bank grew its loan book by 27% compared to 17% growth in the industry-wide credit. In fact, many banks found it difficult to grow their loan book by higher than 20%. Given that, Andhra Bank's performance looks commendable. Even its deposits grew by 31% in FY10. It was in last financial year than the credit growth hit its lowest in the current decade. Andhra Bank's performance clearly shows that it has the ability to buck the trend.

   The bank's stock is trading at a priceto-earning (P/E) multiple of 6.4. Other mid-sized PSU banks are trading at an average of P/E of 6.8. This shows the despite the recent upsurge in the price, the stock hasn't become relatively costlier. It is trading at par with its peers. Considering other parameters, its valuation seems to be even more reasonable. For instance, it reported a return on assets (RoA) of 1.4% in FY10. Given that on an average, Indian banks operate at a RoA of 1%, it seems that Andhra Bank has a sizeable edge over its peers. Similarly, its net interest margin at 3.2% is adequately high in an industry, where 3% is considered as a benchmark. Net non-performing assets formed 0.2% of net advances as at the end of FY10. This is one of the best asset quality in the Indian banking space.

   At present, the valuations of most of the banks seem to have factored in their performance. The broad-based indices are inching upwards, albeit a bit slowly. In such a situation, the investors will give more premium to those companies which have the ability to outperform their industries. Andhra Bank appears to be one such candidate which has consistently maintained its edge. So, it is expected that its stock will continue its goon run, going forward.

SHINING THROUGH

The bank's stock is trading at a P/E multiple of 6.4. Other mid-sized PSU banks are trading at an average P/E of 6.8.

This shows the despite the recent upsurge in the price, the stock hasn't become costlier. It is trading at par with its peers