andhra_bank_-_ic final

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ANDHRA BANK

KRChoksey Research is also available on Bloomberg KRCS<GO>, Thomson Reuters, Factset and Capital IQ

“In the swim of growth opportunities”



ANDHRA BANK

2 KRChoksey – Institutional Research

India Institutional Equity Research I BFSI Initiating Coverage

ANDHRA BANK ` 170

In the swim of growth opportunities BUY

Strong credit growth outlookThough the credit demand has been sluggish of late we believe that it will pick up in

H2FY11 on the back of corporate capex, infrastructure development and improved retail

credit demand. Management is sanguine about 3-5% above industry average credit growth in

FY11. We are modeling ~23.7% loan CAGR over FY10-13E driven by credit demand from

infrastructure, MSME and retail loans.

Margins are sustainable at 3% with positive bias

The bank has been swift in raising the lending rates in order to protect its margins. ~26% of

the total deposits are bulk deposits incl. CDs and out of that ~70% will come for re-pricing in

the next couple of months which will mount pressure on the margins in near term.

However, we expect that bank would be able to maintain its margin at 3.2% going forward.

Further, bank enjoys one of the best risk adjusted spread in the industry.

Superior Asset quality- Higher coverage to cushion earnings

Bank has one of the lowest Gross NPA in the industry which has continuously been declining

from 2.52% in FY05 to 0.87% in FY10. The delinquencies were contained at 0.71% during

FY10, however we have factored in 1.0% slippage in the next three years as a result the

credit cost would also go up to 76bps in FY13 from 54bps in FY10.

Operating leverage to boost core profitability

The bank has heavily invested in technology to provide market competitive transaction

platforms and build technology sawy brand image. We believe improved customer service

and lower turnaround time in credit origination will result into better efficiency and

improve cost structure. The bank has successfully implemented Core Banking Solutions

(CBS) on entire branch network, which resulted in 344bps decline in Cost to Income ratio in

FY10 and going forward we expect it to eventually settle at around 39-40% which is a

healthy ratio in the industry.

Sustainable ROE, Core operations to drive RoE expansionAndhra Bank’s RoAE and ROAA in FY10 stood at 26.0% and 1.3% respectively, against an

average 20.7% during FY06-10, which is one of the best in the industry. Even core RoAE hasbeen quite robust at 18.8% during FY06-10. We expect bank to maintain 24-25% RoAE overFY11-13E. We expect 22.7% CAGR in core earnings over FY10-13E despite factoring in lowertreasury gains and higher provisioning costs.

View & recommendationAndhra Bank has outperformed the Sensex by ~ 3.2x in last one year driven by strong coreprofit growth, healthy asset quality, improving margins and impressive returns. We expectthe bank will continue to maintain growth momentum on the back of 23% CAGR growth inloans, increased thrust on high yielding assets. The bank is well capitalized for the nextthree years and we believe strong internal accruals and headroom for Tier I & II will supportfuture growth. We initiate coverage on the bank with BUY rating with a price target of ̀ 208, an upside of 22%.

̀ in crores

Particulars FY09 FY10 FY11E FY12E FY13E

Net Interest Income 1,627 2,195 2,730 3,436 4,212Pre-provisioning Profit 1,305 1,851 2,125 2,683 3,226

Net Profit 653 1,046 1,175 1,403 1,643

EPS 13 22 24 29 34

ABV 74 89 101 117 134

ROAE 18.9% 26.0% 24.6% 25.2% 25.3%

P/E 12.6 7.9 7.0 5.9 5.0

P/ABV 2.3 1.9 1.7 1.5 1.3

Source: Bank, KRChoksey Research

Price Outlook : ` 208

Market Data October 18, 201 0

Shares outs (Cr) 48.5

Equity Cap (` Cr) 485.0

Mkt Cap (` Cr) 8,245

52 Wk H/L (` ) 177/94

Avg Vol (1yr avg) 234,305

Face Value (` ) 10

Bloomberg Code ANDB IN

Market Info:

SENSEX 20,125

NIFTY 6,063 Price Performance

80

90

100

110

120

130

140

150

160

170

180

Oct-09

Nov-09

Dec-09

Jan-10

Feb-10

Mar-10

Apr-10

May-10

Jun-10

Jul-10

Aug-10

Sep-10

Oct-10

Andhra BSE SENSEX

Share Holding pattern (%)

Particulars Sep-10 Mar-10 Chg

Promoters 51.6 51.6 0.0

Institutions 16.9 18.7 -1.9

FII 16.8 12.9 3.9

Public/Others 14.8 16.9 -2.1

Total 100.0 100.0

Source: BSE Analysts :Deepak [email protected]

℡ 91-22-6696 5555

Manish [email protected]

℡ 91-22-6696 5555

www.krchoksey.com

℡ 91-22-6696 5555

91-22-6691 9569



ANDHRA BANK


Table of Contents

INVESTMENT RATIONALES

• Strong credit growth outlook 4

• Margins are sustainable at 3.2% with positive bias 6

• Superior Asset quality- Higher coverage to cushion earnings 10

• Operating leverage to boost core profitability 13

• Benign non- interest income growth expected in FY11E 15

• Well capitalized for growth 16

• Sustainable ROE, Core operations to drive RoE expansion 17

• Lower MTM Risk 17

PEER COMPARISION 19

INVESTMENT RISK & CONCERNS 20

FINANCIAL ANALYSIS & VALUATION

• Financial analysis 20

• Sensitivity analysis 23

• Quarterly expectations 24

• Valuation & recommendation 25

COMPANY OVERVIEW 27

FINANCIALS 28



ANDHRA BANK


We expect 23.7% CAGR loan

over FY10-13E driven by high

yielding segments such as

SME and retail loans.

Andhra Bank to continue to

outpace system growth for

the next few years.

Almost 2/3rd loans are based

on floating rates and ~86%

loans are secured loans.

INVESTMENT RATIONALES

Strong credit growth outlook

Andhra Bank registered loan CAGR of 26.2% over FY06-10 against 21.3% CAGR at the system

level. During FY10 advances grew by 27.1% against 17.0% of systemic growth. On the other hand,

deposits CAGR over FY06-10 pegged at 23.0% against 21.1% at the system level while in FY10,

deposits growth of the bank was one of the highest growth achieved by the bank ever against

17.1% for the industry. Most importantly, the bank clocked such an impressive growth despite

challenging environment and increased competition while improving its market share.

Though the credit demand has been sluggish of late and most of the demand has been for short

term loans such as working capital loans and one off spike due to 3G loans. However we are of

the opinion that credit demand will pick up in H2FY11 on the back of corporate capex,

infrastructure development and improved retail credit demand. Management is sanguine about

3-5% above industry average credit growth in FY11. We are modeling ~23.7% loan CAGR over

FY10-13E driven by credit demand from infrastructure, MSME and retail particularly housing and

gold loans. We expect 2.5x growth in gold loan book over FY11-13E on which the bank earns a

handsome yield of 14.75%. MSME remains a thrust area for growth while retail book will continue

to grow by 20-25%.

Loan book of the bank will continue to grow 3-5% ahead of the system

Exhibit-1: Advance growth trend

10%

14%

18%

22%

26%

30%

FY07 FY08 FY09 FY10 FY11E FY12E FY13E

Andhra Bank System

CAGR FY07-10: 19.1% CAGR FY10-13E: 23.7%

26%

23%

29%27%

23% 24% 24%

0%

5%

10%

15%

20%

25%

30%

35%


Advance Growth

Source: RBI, Bank, KRChoksey Research



ANDHRA BANK


Corporate loans dominatewith 39% but SME book will

grow faster.

About ` 18,000 crore loans

are sanctioned mostly to the

infrastructure sector.

The exposure to the powersector has almost hit the

sectoral limit of 25%.

Corporate loans to dominate but MSME will grow faster.

28% 29% 26%23%

31%39%

8% 6% 12%12%

12%

15%

0%

10%

20%

30%

40%

50%

60%

FY05 FY06 FY07 FY08 FY09 FY10

Large Industries MSME

Exhibit-2: Loan break-up

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11

Corporate loans MSME Retail

Agriculture Others


Currently, the total sanctioned loans amount to ` ~18,000 crore mostly from infrastructure space

(power sector in particular). The total exposure to power sector has increased to ~21% in Q1FY11

from 14% in Q4FY10. About 50% of the loans to power sector are given to State ElectricityBoards, Power Financing companies and other PSUs engaged in T&D businesses and remaining

loans are given for Greenfield projects. These sanctioned loans are of mixed nature- short term

as well as long term with average duration of ~3 years. We expect drawdown to pick up in

H2FY11.

Exhibit-3: Exposure to top 10 industries as on June 30, 2010

Power Construction Housing

Iron & Steel Textiles NBFC

Commercial Real Estate Rice Mi ll Engg (Heavy & Light)

Petroleum Products




ANDHRA BANK


~10% loans are linked with

Base Rate System.

Notwithstanding decline in

CASA ratio, margins have

been maintained at above

3.0%.

Bank has quickly revised its

BPLR as well base rate in

order to pass on the rise in

cost of funds and protect

margins.

Margins are sustainable at 3.2% with positive bias

Bank’s Net Interest Margin (NIM) in June 2010 quarter was one of the highest amongst the PSBs

at 3.72% only next to PNB’s 3.94%. Net interest margins have seen improvement by 87 bps from

June 2009 to June 2010 largely on account of re-pricing of deposits and stable asset yield. Going

forward, the bank is focusing on relatively higher yield segments like SME, housing loan,

education loan and gold loans which positively impact on blended asset yield. We expect strong

growth in SME book over FY10-13 and gold loan book to grow 2.5x over FY11-13. We believe

asset mix in favour of high yield assets, 2/3rd floating loan book will be able to sustain margins

in a rising interest rate environment. Our analysis shows that relatively weaker CASA base will

not be major hurdle in maintaining ~ 3% plus NIM going forward.

Exhibit-4: CASA & Margins trends

26%

27%

28%

29%30%

31%

32%

33%

34%

35%


2.9%

3.0%

3.1%

3.2%

3.3%

CASA NIM


Taking signal from the RBI, the bank raised base rate and BPLR by 25 bps and 75 bps respectively

to pass on increase in cost of funds since Q1FY11

Exhibit-5: Revised base rates

Base Rates Old New Change

Allahabad Bank 8.00% 8.50% 0.50%

Uco Bank 8.00% 8.50% 0.50%

Corporation Bank 7.75% 7.75% 0.00%

Andhra Bank 8.25% 8.50% 0.25%

Dena Bank 8.25% 8.25% 0.00%

Source: KRChoksey Research

With base rate coming into force from July 1, 2010, continued thrust on retail credit, the

management is confident of maintaining NIM of 3.2% in FY11. Since AAA rated corporate loansamount to ` 1,290 crore constituting 2.28% of the total advances, there will not be much

pressure on the margins on account of large corporate clients resorting to commercial papers.

Moreover, since bank has swiftly raised its lending rates it will help arrest the margin pressure

arising as a result of re-pricing effect.

We believe that margin will remain stable with positive bias as re-pricing of assets offset

increase in cost of funds along with shift of asset mix in favour of SME and retail.



ANDHRA BANK


During Q1FY11, Andhra Bank

had one of the best marginsat 3.72% in the industry.

Andhra Bank enjoys one of

the best risk adjusted

spreads in the industry.

Exhibit-6: Banks’ margins in the industry in June 2010 quarter

3.1%

3.7%

2.6%

3.0%

3.7%

2.9% 2.8% 2.9%

3.3%

3.1%

0.00%

1.00%

2.00%

3.00%

4.00%

Allahabad

Andhra

Corporation

Canara

Indian Bk

Central

Bank

Dena

Vijaya

OBC

Uco


Exhibit-7: Risk adjusted spreads of the banks

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

FY02 FY03 FY04 FY05 FY06 FY 07 FY08 FY 09 FY10

A llahabad Andhra Corporat ion Uco Canara SBI


The following table shows the deposits and credit profiles of the bank as on March 31, 2010. It isevident that ~87% of the advances were extended at more than the base rate of the bank (8.5%)while 39% of the loans were given at more than the BPLR of 12%. Further, one third of the termdeposits were raised at 6% or below 6%. Close to 87% term deposits were raised at the interestrate ranging in between 3-9% which helped the bank maintain excellent margin of 3.21% duringFY10.

Advances

Interest Rate Amount %age

Sub 5.0%-6.0%685 1.2%

6.0%-8.0%5,835 10.4%

8.0% -9.0%3,222 5.8%

9.0%-10.0%8,422 15.1%

10.0%-12.0%15,971 28.5%

>12.0% (BPLR)21,822 39.0%

Term Deposits

Interest Rate Amount %age

Sub 3.0%-4.0% 3,089 7.7%

4.0%-5.0% 1,799 4.5%

5.0%-6.0% 7,631 19.0%6.0%-7.0% 13,006 32.3%

7.0%-8.0% 7,421 18.4%

8.0%-9.0% 1,876 4.7%

9.0%-10.0% 2,298 5.7%

10.0%-12.0% 3,077 7.6%

Above 12.0% 37 0.1%




ANDHRA BANK


Asset Liability Management

An analysis of the maturity patterns of the bank’s rate sensitive assets and liabilities elicit that

the re-pricing gap or dollar gap (RSA minus RSL) has been continuously widening. Generally

speaking, in case of a positive dollar gap (RSA > RSL), increasing interest rates are beneficial for

the banks. Andhra Bank had a negative dollar gap of ̀ 5,252 crore in FY06 which has

continuously expanded to 27,058 crore in FY10. Similarly, the Interest Rate Sensitivity Ratio

(RSA/RSL) declined to 46.8% in FY10 from 69.5% in FY06. However, bank is well within the

maturity gap limits prescribed by RBI. In a rising interest environment, NIM often falls in case of

negative dollar gap subject to liquidity in the system.

However, we carried out this analysis for several banks and found out a wide mismatch in the

maturity profile of assets and liabilities. We believe this can be attributed to the fact that the

smart depositors are wary of unattractive and negative real interest rates on bank deposits

thanks to volatile inflationary expectations. Thus, we deduce that bank’s margin also depends a

lot on the ability of the bank to pass on the rise in the cost of funds which Andhra Bank has

demonstrated.

Exhibit-8: Re- pricing gap

-5,252-6,986

-11,366

-14,664

-27,058-30,000

-25,000

-20,000

-15,000

-10,000

-5,000

0

FY06 FY07 FY08 FY09 FY10

Re-pricing Gap ( Rs c rore))

Exhibit-9: Liquidity position

-7.00%

-6.00%

-5.00%

-4.00%

-3.00%

-2.00%

-1.00%

0.00%

1.00%

2.00%

3.00%

Q1FY10 Q2FY10 Q3FY10 Q4FY10 Q1FY11

Liquidity Position*

Not e: Ratio of cum. Gap as % to cum. Outflow up to 1 year period; liquidity position as on last

reporting Friday of the Quarter end.

Low cost liability franchise

The CASA ratio of the Andhra Bank declined from 34.5% in FY07 to 29.4% in FY10. Though the

bank has been laying emphasis on increasing its CASA deposit base in order to keep the cost of

deposits lower and planning to open branches in top 100 banking centers to improve its low cost

liability franchise, we have modeled current ~30% CASA ratio going forward. Notwithstanding the

bank has lower CASA ratio than PSU bellwethers we believe the ability to pass on the rise in the

cost of funds will help the bank to protect its margin well above 3.2%.



ANDHRA BANK


The re-pricing of advances

will mitigate the impact of

the re-pricing of deposits on

margins.

Exhibit-10: CASA Comparison with peers (Q1FY11)

29.6%

34.2%

24.1%

33.3% 34.2%

25.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

Andhra Allahabad Corporation Indian Central

Bank

Uco


Exhibit-11: CASA growth trend

0%

10%

20%

30%

40%

50%

60%

70%80%

90%

100%


0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

CA SA CASA Ratio CASA Growth Source: RBI, Bank, KRChoksey Research

Re-pricing of Deposits maturing in One year % of total deposits

Andhra 62.8%

BoB 60.9%BoI 58.1%

Indian 58.0%

Axis 55.2%

Corporation 54.5%

Allahabad 51.1%

ICICI 48.0%

Central Bank 39.4%

Union Bank 39.3%

PNB 36.6%

SBI 35.8%


Re-pricing of advances would lead to improvement in the margins as almost 2/3 rd loans arebased on floating rates.



ANDHRA BANK


Bank had one of the lowest

Gross NPA in the industry

during June 2010 quarter.

Impaired assets (NNPA plus

restructured book post tax)

to advances pegged at 3.7%

while impaired assets to net

worth stood at 46.5% in

FY10.

Bank also has superlativecoverage ratio at 85.9% inQ1FY11.

Superior Asset quality- Higher coverage to cushion earnings

Andhra Bank has maintained its superlative asset quality and remained unscathed even during

the financial crisis. Bank has one of the lowest Gross NPA in the industry which has continuously

been declining from 2.52% in FY05 to 0.87% in FY10.

The delinquencies were contained at 71bps during FY10 however we believe Gross NPA is likely

to rise to 1.5% by FY12E. We have factored in 1.0% slippages over FY11-13E as a result the credit

cost would also go up to 76bps by FY13E from currently 54 bps. Further, Bank has been

maintaining high provisioning coverage ratio of 90% plus which provides cushion to its earnings in

troubled times. Its PCR pegged at 85.9% during Q1FY11.

Exhibit-12: Gross NPA and Net NPA (Q1FY11)

1.0%

1.5%

1.1% 1

.5%

2.4%

2.4%

0.3%

0.4%

0.4% 0

.8%

0.8%

1.1%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

Andhra Allahabad Corporation Indian Central Bank Uco

GNPA (%) NNPA (%)

Exhibit-13: Impaired assets to advances (FY10)

3.7% 3.6%3.1%

5.8%

3.7%

2.8%

7.6%

0.0%

2.0%

4.0%

6.0%

8.0%

Andhra

Allahabad

Corporation

Indian

Central

Bank

Uco

IOB

Exhibit-14: Comfortable Provisioning coverage ratio

85.9% 85.4%

76.7%83.1%

68.8%58.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Andhra Allahabad Corporation Indian Central

Bank

Uco




ANDHRA BANK


Fresh slippages during FY10pegged at 0.7% which is

lowest in the PSU space.

Exposure to the aviation

sector amounts to ` ~ 640

crore.

Only 5.0% of the

restructured assets have

turned into NPA and we

factor in further 5.0%

slippages from restructured

assets book.

Exhibit-15: Slippage in FY10

0.7%

1.7%

0.8%0.9% 1.0%

1.3%

4.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

Andhra

Allahabad

Corporation

Indian

Central

Bank

Uco

IOB


Restructured assets of the bank stood at ` 3,036 crore which is equivalent to 5.31% of theadvances in Q1FY11 which was lower than some leading PSU banks such as PNB (6.6%) and BOI(6.0%). However only 5.0% of the restructured assets have turned into NPA against 22.1% in caseof BOI, 11.5% for SBI, 9.0% for BOB and 8.0% for PNB. We factor in further 5.0% slippages fromrestructured assets book and still we believe bank will be able to generate a 22.7% CAGR in coreprofits over FY11-13E.

Bank has taken several steps to monitor restructured accounts such as creating special cells atall the controlling offices. Zonal managers personally monitor all the restructured accountswhile high value accounts of ̀ 50lacs and above are monitored from the Head Office. Moreover,progress on this account is reviewed in fortnightly video conference with all zonal offices.

Exhibit-16: Restructured Book (Q1FY11)

5.3%

4.3% 4.3%

7.7%

4.8%

2.5%

6.0%6.6%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

Andhra

Allahabad

Corporation

Indian

Central

Bank

SBI

BOI

PNB

Exhibit-17: NPA from Restructured Book (Q1FY11)

5.0% 5.2%6.2%

7.8%

2.9%

11.5%

22.1%

8.0%

0.0%

4.0%

8.0%

12.0%

16.0%

20.0%

24.0%

Andhra

Allahabad

Corporation

Indian

Central

Bank

SBI

BOI

PNB




ANDHRA BANK


Gross NPA is likely to

increase to 1.5% going

forward, as a result credit

cost will also go up to 75bps

from 54bps currently.

Exhibit-18: Asset quality profile

Asset Quality Profile FY 09 FY 10 FY 11E FY 12E FY 13E

Gross NPA 368 488 841 1,283 1,831

Net NPA 79 96 231 321 525

Gross NPA as % of Advances 0.83% 0.87% 1.22% 1.50% 1.73%

Net NPA as % of Advances 0.18% 0.17% 0.33% 0.37% 0.49%

Credit Costs 0.39% 0.54% 0.61% 0.75% 0.76%




ANDHRA BANK


Cost to income is expectedto moderate to 39-40% going

forward as operating

leverage will kick in.

Bank has provided for

liabilities such as gratuity

and second option pension

liabilities.

Bank implemented 100% CBS

in FY09 which resulted in

344bps decline in Cost to

Income Ratio in FY10.

Operating leverage to boost core profitability

The Cost to Income Ratio of the bank is comfortable at 46% (Q1FY11). Going forward we expect

C/I Ratio to improve as operating leverage kicks in. C/I Ratio is higher in comparison to peers

such as Corporation Bank (35.6%) and Allahabad Bank (38.7%) but bank has provided for the

liabilities on account of gratuity/second option unlike Corporation Bank. Moreover bank has

successfully implemented CBS and computerization across its entire branch network which

ensures better productivity and results in rationalization of its operating costs. Going forward,

we expect it to eventually settle at around 39-40% which is a healthy ratio in the industry.

Bank has already provided for ` 17.5 crore on account of Second Pension Options, under which

~6,000 employees fall, during Q1FY11 assuming total liability of ̀ 350 crore. However we believe

bank will get to amortize such liability over 20 quarters mitigating any immediate pressure on

the bottom lines. During Q1FY11, the bank also provided for the gratuity amounting to ` 30 crore

unlike some leading banks such as BoB, BoI and Corporation Bank.

Bank has recruited 2,607 employees in the last three years ended on March 2010 against 400

employees who retired during the same period. 179 employees have retired till August 2010.

About 23% officers (who form 58.9% of the total employee strength of 14,256) are going to retire

in next five years.

Exhibit-19: Employee cost break up

Employee Costs Break-up FY08 FY09 FY10

Total Employee Costs 509 624 824

Gratuity 4 -9 23

Pension 40 42 119

Leave Encashment 26 14 21

Others 0 0 1

Total Retirement benefits cost 70 47 164

Retirement Benefits/Employee Costs 13.7% 7.5% 19.9%


Branch expansion and technology leverage to improve operating efficacy

The bank has outlined in their business growth strategy that SME and retail will be the next loan

growth drivers going forward. Andhra bank has formed specific branches and credit and

monitoring cells for quicker credit sanction and improves customer service. Moreover, the bank

heavily invested in technology to provide market competitive transaction platforms and build

technology sawy brand image. After conscious efforts to enhance its brand image and visibility

during the previous year, the bank is aiming to increase its delivery channels- it plans to open

100 branches in largely potential centers in Northern and Eastern India- 50% will be opened in

tier 3-6 cities and rest will be opened in top 100 banking centers. It opened 125 branches in

Northern and Eastern India in FY10. Bank has already implemented CBS in all its branches and is

set to reap the benefits by leveraging on technology enhancing its products offerings such as

internet and mobile banking. Such measures will augment its CASA base and arrest the margin

pressure.

Exhibit-20: Yearly branch expansion

FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11E

Branches 1,128 1,168 1,213 1,289 1,366 1,432 1,557 1,677

Additions 28 40 45 76 77 66 125 100




ANDHRA BANK


Branch productivity and

profitability is likely toimprove going forward.

Exhibit-21: Branch profitability & productivity in ` lakh (FY10)

Profit per branch

67.1

52.8

101.5

88.6

29.6

67.1

30.9

0.0

20.0

40.0

60.0

80.0

100.0

120.0

Andhra

Allahabad

Corporation

Indian

Central

Bank

Uco

IOB

Business per branch

8,594

7,768

13,501

8,563

7,478

13,589

8,303

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Andhra

Allahabad

Corporation

Indian

Central

Bank

Uco

IOB




ANDHRA BANK


Spike in fee income in FY08

could partly be attributed to

79.5% growth in fee income

through bancassurance.

We have factored in lower

MTM loss provisioning- 1.2%

on profit before taxes over

FY11-13

The contribution of the

treasury income to the profit

before taxes has declined

significantly.

Benign non- interest income growth expected in FY11E

Bank generates fee income from corporate banking, SME banking, transaction banking and

distribution of financial products. Over the years, fee income growth has been laggard the asset

growth due to relatively lower service charges on fee generating products and lack of focus on

fee income by the management. However, under the leadership of R S Reddy, bank saw

transformational change in terms of introduction of fee income generating products, revision of

service changes and strategic focus. Andhra Bank has undergone service charges revision for

their non fund based products during FY10 resulting into one time increase in fee income.

Exhibit-22: Fee income growth trend

8%

102%

8%

28%

17%11% 14%

0%

20%

40%

60%

80%

100%

120%


Fee Income


Bank has a joint venture in life insurance with BoB and Legal & General Plc of UK which

commenced its business from January 2010. We expect bancassurance business will boost the

fee based income of the bank however any meaningful impact would reflect only after FY12

when bancassurance business will pick up. However, we have modeled in 14.2% CAGR in fee

based income over FY10-13.

Treasury gains have been a key contributor to ROE of the bank, however, we believe going

forward core earnings will drive the ROE expansion and thus we have modeled lower treasury

gains- 80bps of the SLR investment book as trading profits in FY11 and 70bps and 60bps in FY12and FY13 respectively against an average of 140bps in FY08-10. From the following table we can

observe that the contribution of treasury income to the profit before taxes has declined

significantly.

Exhibit-23: Contribution of treasury gains to PBT

Treasury gain/PBT FY05 FY06 FY07 FY08 FY09 FY10

Andhra Bank 58% 30% 2% -1% 12% 4%

Allahabad Bank 42% -7% -8% 46% 31% 43%

Corporation Bank -15% 13% 8% 13% 21% 15%

Central Bank 39% -134% -15% 9% 35% 46%

Indian Bank 17% -10% -6% 5% -4% 9%

Uco Bank 43% -75% -30% 25% 55% 16%

IOB 36% 9% 17% 5% 33% 30%




ANDHRA BANK


Internal accruals may help

the asset book to grow by

57% over FY11-13E.

Well capitalized for growth

Many PSBs are likely to raise equity capital to shore up their tier I capital which we believe

would be book accretive as they will raise funds at substantially higher price than the book

value. The 13.9% capital adequacy ratio (CAR) provides enough headroom for the future business

growth.

Andhra Bank’s tier I capital is a tad below 8% and may raise ` 650 crore equity capital through

rights issues this fiscal. However, we have not factored in any equity capital infusion in ourestimation. We believe ploughing back of profits will help asset book of the bank to grow by 57%

over FY11-13E. Besides, it has enough headroom available to raise tier I and tier II capital and

thus capital is not a constraint for the bank to grow its asset base that too without any equity

dilution.

Andhra Bank to maintain 23%+ growth in assets without further equity capital infusion

Expected retained earnings - FY11-13 2,592

Assumed leverage (x) 20

Potential incremental Asset base 51,831

FY10 Asset size 90,431

Internal Accruals driven growth potential 57%


Headroom available to raise capital without effecting any equity dilution.

Exhibit-24: Headroom available

Headroom Available as on June 30, 2010 Existing Headroom Available

Tier I Capital Instruments 200 2,750

Innovative Perpetual Debt Instruments (IPDI) 200 463

Perpetual Non Cumulative Preference Shares (PNCPS) 0 2,287

Tier II Capital Instruments 2,740 1,321

Upper Tier II 1,000 849

Subordinate Debt 1,740 472

Total 2,940 4,071

Source: Bank



ANDHRA BANK


We believe bank will

maintain 24-25% RoE over

FY11-13E.

Sustainable ROE, Core operations to drive RoE expansion

A strong growth in net interest income on account of volume growth and better loan yields,

further aided by robust growth in fee based income and treasury gains helped the bank in

maintaining 1.15% ROA and 21.0% ROE (Core 18.0%) during FY08-10. FY2010 was exceptionally

good for the bank as ROE improved significantly. Even excluding FY10, bank maintained 18.9%

ROE and 18.0% core RoE over FY07-09. Andhra Bank’s RoAE and ROAA in FY10 stood at 26.0% and

1.3% which are one of the best in the industry. Even core returns were quite robust at 20.1% and

1.0% respectively. We expect bank will be able to maintain 24-25% RoE over FY11-13E. We

expect 22.7% CAGR in core earnings over FY10-13E despite factoring in lower treasury gains and

higher provisioning costs.

Exhibit-25: RoAE decomposition

ROAA Decomposition FY 09 FY 10 FY 11E FY 12E FY 13E

NII/Total Avg Assets 2.60% 2.76% 2.75% 2.87% 2.90%

Fee Income/Total Avg Assets 0.75% 0.75% 0.70% 0.65% 0.61%

Treasury & other Income/Total avg assets 0.50% 0.52% 0.28% 0.27% 0.22%

Employee Cost/Total avg Assets 1.00% 1.04% 0.94% 0.92% 0.92%

Operating Costs/Total avg Assets 0.77% 0.66% 0.65% 0.64% 0.59%

Provisions/Total avg Assets 0.65% 0.52% 0.51% 0.63% 0.66%

Tax/Total avg Assets 0.39% 0.49% 0.45% 0.45% 0.43%

ROAA 1.04% 1.32% 1.18% 1.17% 1.13%

RoAE 18.9% 26.0% 24.6% 25.2% 25.3%


Lower MTM Risk

Andhra Bank is well placed than its peers for mark to market risk on AFS portfolio as it has small

AFS investment portfolio (12.6%) and lowest duration (0.9 year). Bank has pruned its AFS

portfolio quite significantly from 27.8% in Q4FY09 to 12.6% in Q1FY11. Even the duration has

decreased to 0.9 years from 2.63 years in Q4FY08. In a rising interest rate environment, small

AFS book and lower duration will help mitigate interest rate risk to earnings. We have factoredin lower MTM loss provisioning- 1.2% on profit before taxes over FY11-13 against 8.5% during

FY08-10.

Exhibit-26: Lowest AFS portfolio and duration in the industry

AFS (%) AFS (%) Q1FY11 AFS Duration Q1FY11

IOB 34.90% 2.6

Axis 32.70% 2.8

Allahabad 28.80% 1.9

Corporation 28.60% 1.0

Union Bank 24.60% 1.8

BoI 22.10% 1.8

SBI 21.40% 3.5

BoB 19.90% 2.2

OBC 19.90% 3.3

Canara 19.10% 1.9

PNB 18.20% 2.4

Andhra 12.60% 0.9




ANDHRA BANK


MTM Impact on FY11E PBT ` crore

AFS- Investments 2,763

AFS (%) 12.6%

Duration (Years) 0.87

Change in Yields 0.50

MTM impact 12.0

PBT FY11E 1,620

Impact (%) 0.7%

Bond Yields

3%

4%

5%

6%

7%

8%

9%

10%

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

10 yr Bond




ANDHRA BANK


PEER COMPARISION

Andhra Allahabad Corporation Indian Central Bank Uco IOB

CAGR FY05-10

Loan Growth26.2% 27.6% 27.8% 27.6% 31.0% 24.4% 25.7%

FY10

FY10 Loan

growth27.1% 21.8% 30.3% 20.8% 23.3% 19.9% 5.5%

Profit per

branch (` lakh)67.1 52.8 101.5 88.6 29.6 67.1 30.9

Business per

branch (`

Lakh)

8,594 7,768 13,501 8,563 7,478 13,589 8,303

Slippages 0.7% 1.7% 0.8% 0.9% 1.0% 1.3% 4.0%

Impaired

assets/ on

networth

45.5% 44.3% 33.9% 51.5% 68.5% 49.0% 94.9%

Impaired

assets/

advances

3.6% 3.6% 3.1% 5.8% 3.7% 2.8% 7.6%

Opex/AA 1.7% 1.5% 1.1% 1.9% 1.4% 1.3% 2.0%

Employee/AA 1.0% 0.9% 0.6% 1.3% 0.9% 0.8% 1.4%

Retirement

benefits/Emplo

yee costs

19.9% 14.4% 18.8% 29.3% 13.1% 33.9% 27.9%

5 year average

RoA1.2% 1.2% 1.2% 1.5% 0.5% 0.5% 1.2%

5 year average

RoE20.7% 23.1% 17.7% 24.2% 15.0% 17.2% 24.4%

5 year average

Core ROE18.8% 17.1% 14.0% 24.3% 14.4% 16.3% 18.6%

Andhra Corporation Allahabad IOB Indian UCO

EPS

FY11E 24.2 93.5 32.6 15.9 38.7 22.4

FY12E 28.9 113.9 41.3 22.1 48.0 29.0

BVPS

FY11E 106 468 150 121 184 77

FY12E 124 556 184 139 221 101

ROA

FY11E 1.2% 1.1% 1.1% 0.6% 1.5% 0.9%

FY12E 1.2% 1.1% 1.1% 0.8% 1.5% 0.9%

ROE

FY11E 24.6% 21.2% 20.7% 12.5% 21.2% 23.5%

FY12E 25.2% 21.5% 21.4% 15.6% 21.7% 23.4%

PE (x)

FY11E 6.8 7.7 7.3 9.4 7.8 5.4

FY12E 5.7 6.3 5.7 6.8 6.3 4.2

P/B (x)

FY11E 1.5 1.5 1.6 1.2 1.6 1.6

FY12E 1.3 1.3 1.3 1.1 1.4 1.2

Source: Bloomberg, KRChoksey Research

Note: We have taken Bloomberg estimates for stocks not under our coverage.



ANDHRA BANK


INVESTMENT RISK & CONCERNS

1. Higher than expected slippages from restructured assets: Though we have factored in

5.0% further slippages from the restructured books and 1% fresh slippages over FY11-

13E, any further delinquencies would have an adverse impact on the profitability of the

bank.

2. Concentration risk: Though the bank is expanding its reach and opening new branches in

Northern and Eastern parts of India, over 65% branches are located in Andhra Pradesh,

thus there is a concentration risk.

3. Shorter tenure of the new CMD: A short tenure of the new CMD, who will retire in the

next one and half years, affects long term business strategies and plans.

FINANCIAL ANALYSIS & VALUATION

Financial analysis

Advances

Advances grew by 26.2% CAGR over FY06-10 driven by strong growth in SME book that grew by

61.5% CAGR followed by loans to large industries segment that registered 35.6% CAGR.

Agriculture loans too posted 24.2% CAGR during the period. Housing loans grew two fold overFY07-10 while education loan book clocked 22% CAGR during the same period. Bank has been

able to improve its market share.

Exhibit-27: Advance growth trend

0

10,000

20,000

30,000

40,000

50,000

60,000


0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

Advances Advances growth




ANDHRA BANK


Deposits

Deposits grew by 23% CAGR over FY06-10. Bank’s CASA base has not been improved as bank

continue to be dependent on high cost term deposits that clocked 26.2% CAGR against 21.6%

CAGR in current account deposits and 14.9% CAGR in savings deposits. The average CASA growth

pegged at 18.2% over FY06-10 while CASA ratio has continuously been declining from 36.3% in

FY06 to 29.4% in FY10. In the last three years the proportion of CA deposits in CASA deposits has

improved 290 bps whilst that of savings deposits has declined.

Exhibit-28: Deposit growth trend

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000


0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

Deposits Deposit growth

Credit to Deposit ratio

The credit to deposit ratio stood at 72.2% during FY10 against 74.3% in FY09. The ratio has

continuously improved since 2002 onwards when it stood at 52.3%. On an average this ratio was

~60% over FY02-07 which improved to 71.9% during FY08-10.

Exhibit-29: Credit to deposit ratio trend

56.0%

60.0%

64.0%

68.0%

72.0%

76.0%


Credit to Deposit Ratio

Net Interest IncomeThe net interest income of the bank clocked 17% CAGR over FY06-10 primarily because of lowergrowth in interest on investments that posted just 10.7% CAGR over the same period. Interestincome from advances grew by 30.8% CAGR against 28.6% CAGR in interest on deposits during thesaid period. Exhibit-30: Net Interest Income Growth trend

0

500

1,000

1,500

2,000

2,500


-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%40.0%

NII NII growth



ANDHRA BANK


Net Interest Margins

The margins (calculated) of the bank were maintained at an average of 3.64% during FY02-07

which declined to 2.93% during FY08-10 primarily because of decline in the interest income on

investments. The interest income on investments that contributed to the total interest income

earned about 37.6% during FY02-07 it declined to 20.7% during FY08-10.

Exhibit-31: Net Interest Margin trend

3.58%

3.32%

3.20%

3.00% 3.03%

3.21%

2.60%

2.80%

3.00%

3.20%

3.40%

3.60%

3.80%


NIM

Cost to Income Ratio

The cost to income ratio stood at 42.2% while the cost to core income ratio was 46.9% during

FY10. The average cost to income ratio during FY02-06 was 58.1% which declined to an average

of 48.7% during FY07-10. We expect further improvement going forward as the operating

leverage kicks in.

Exhibit-32: Cost to income ratio trend

30.0%

38.0%

46.0%

54.0%


Cost to Income Ratio



ANDHRA BANK


Asset quality

Andhra Bank has maintained its superlative asset quality and remained unscathed even during

the financial crisis. Bank has one of the lowest Gross NPA in the industry which has continuously

been declining from 2.52% in FY05 to 0.87% in FY10. The delinquencies were contained at 0.71%

during FY10 Further, Bank has been maintaining high provisioning coverage ratio of 90% plus

which provides cushion to its earnings in troubled times. Its PCR pegged at 85.9% during Q1FY11.

As a result of good asset quality, the credit cost too remained lower- declining to 0.54% from

1.88% in FY04.

Exhibit-33: Asset quality profile

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

FY05 FY06 FY07 FY08 FY09 FY100.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

GNPA NNPA Credit Cos t Source: Bank, KRChoksey Research

Sensitivity analysis

A 2% change in advances growth from our base case of 23% advance growth in FY11, can impact

the EPS by 3.2% while on book value impact will be of 40bps. ROE may decline or improve by

72bps. On the other hand, a 10bps change in the margin or 20bps change in credit cost too can

have a material impact on earnings and return ratios.

Exhibit-34: Impact analysis on EPS, book value and ROE

Bear case Bull case

FY11E Loan Growth 21% 25%

EPS -3.2% 3.2%

BVPS -0.4% 0.4%

ROE -73 bps 72 bps

Bear case Bull case

NIM 2.9% 3.1%

EPS -5.6% 4.9%

BVPS -0.8% 0.7%

ROE -129 bps 111 bps

Bear case Bull case

FY11E LLP / Loans 81 bps 41 bps

EPS -8.6% 8.6%

BVPS -1.2% 1.2%

ROE -196 bps 194 bps




ANDHRA BANK


Exhibit-35: Quarterly trends

Particulars Q2FY10 Q3FY10 Q4FY10 Q1FY11 Q2FY11E

Interest Earned 1,558 1,603 1,708 1,865 1,975

Interest expended 1,043 1,020 1,052 1,129 1,225

Net Interest Income 515 583 656 73 6 749

Other Income 233 224 269 208 200

Trading Profits 95 48 53 48 35

Total Income 748 807 925 944 949

Total Operating Expenses 295 325 398 434 407

Pre-provisioning Profits 453 482 527 510 542

Provisions & Contingencies 58 96 223 52 104

Loan Loss Provisions 57 66 194 52 103

PBT 395 385 304 458 438

Provision for taxes 121 110 64 138 132

Net Profit 274 275 240 320 306




ANDHRA BANK


Valuation & recommendation

We value bank on relative price to book method and residual income model as it captures

earnings growth and return profile of the bank. Historically stock has traded at ~25% discount to

SBI. Applying the same discount we have assigned 1.7x P/BV multiple to FY12ABV of ̀ 117 giving

a value of ̀ 200 per share. Further, using the Residual Income Valuation method we have arrived

at a valuation of ̀ 230 per share. Our target price is derived by ascribing 70% weight-age to

relative valuation method and 30% to the residual income valuation method.

Exhibit-36: Valuation matrix shift in different market stages

Underlying fundamental focus and valuation methods

Bear market

In bear market, investor focuses on margin of safety, value buying and

stable earning profile

Uncertain growth outlook

Firms have limited capital raising opportunities at reasonable prices to

fund their growth plans

Valuation metric: Price to book

Bull market

In a rapidly rising economic cycle, investor's focus shift to growth stocks,

market out-performers, value unlocking etc.

Bull market provides ample avenues to the firms to raise capital throughcapital markets and improve their leverage capacity

Valuation matrix: Price to earnings, Discounted Cash Flow Method


Andhra Bank is expected to report 24-25% ROAE over FY11-13E on the back of ~23.7% CAGR in

loan book driven by SME and retail assets while maintaining stable margins with positive bias.

The stock has outperformed the market benchmark 3x on the back of strong profit growth and

healthy asset quality in the last one year. We continue to believe the bank to report superior

returns with core earnings CAGR 22.8% driven by 23.7% CAGR loan and stable margins in the PSU

space. RoA and RoE are expected to remain healthy at ~ 1.1% and ~25% over FY10-FY13. At, `

170 the stock trades at 1.5x FY2012 book and 5.9x FY2012 earnings which provides sufficient

margin of safety with target price of ̀ 208, implying upside 22%.

Key Assumptions to Residual Income Valuations

Rf 7.9%

Beta 1.0

ERP 7.2

Cost of Equity 14.7%

Payout Ratio 33.0%

Terminal growth 4.0%


Recommendation

Strong growth outlook, sustainable earnings, 20% plus core profit growth and superior asset

quality lead us to initiate on the bank with BUY rating with a target price of ̀ 208.



ANDHRA BANK


Exhibit-37: Price discount to SBI

Discount To SBI

Avg Dis

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

Apr-04

Oct-04

Apr-05

Oct-05

Apr-06

Oct-06

Apr-07

Oct-07

Apr-08

Oct-08

Apr-09

Oct-09

Apr-10

Oct-10

Exhibit-38: Price bands- PB & PE bands

0.4 x

0.9 x

1.4 x

1.9 x

2.4 x

0

50

100

150

200

250

300

Apr-04

Apr-05

Apr-06

Apr-07

Apr-08

Apr-09

Apr-10

5.0 x

7.0 x

9.0 x

11.0 x

0

50

100

150

200

250

300

350

Apr-0

4

Apr-0

5

Apr-0

6

Apr-0

7

Apr-0

8

Apr-0

9

Apr-1

0




ANDHRA BANK


Shareholding Pattern

19%

15%

52%14%

GoI DII

FIIs Others

In FY09, out of total 6,698branches in Andhra Pradesh,~23% branches belonged toAndhra Bank.

COMPANY OVERVIEW

Andhra Bank, established in the year 1923, is a Hyderabad headquartered state owned bank with

an asset size of ̀ ~90,500 crore and network of 1,560 branches, 886 ATMs and 14,256 employees.

Over 65% of the branches are located in Andhra Pradesh only. The government ownership is at

the 51.6%. Bank is predominantly based in south Indian states and expanding its reach to

northern terrains in order to become a pan India player. Andhra Bank’s total business touched `

131,844 crore as on June 30, 2010, with deposits at ` 74,700 crore and advances of ̀ 57,144

crore. Its credit-deposit ratio stood at 76.5% in Q1FY2011. Bank has a joint venture in life

insurance with BoB and Legal & General Plc of UK which commenced its business from January

2010. The Bank holds 30% stake in this joint venture while BoB holds 44%. It is also planning to

form a banking joint venture with BoB and IOB in Malaysia for which it has got the necessary

approval from the RBI.

Management profile

Andhra bank has a strong and experienced team of professionals having an average experience of

35 years. Recently, Mr. R. Ramachnadran, who has long stints with Indian Bank and Syndicate

Bank, was appointed as new CMD of the bank by the government of India on September 1, 2010

replacing Mr. RS Reddy. Mr. Ramachandran has wide overseas experience and also exposure to

areas of corporate credit, forex treasury and international banking. He took charge of all thedepartments by rotation which will give him an edge in his new role. However he will have a

tenure of about one and half years. A strong management team reinforces confidence in the

Bank’s ability to deliver high growth while keeping a tab on asset quality.

Exhibit-39: Core Management Team

CMD R.Ramachandran

Large Corporate R.J.Vaidyanathan, Chief GM

Inspection & Audit S.Suryanarayana, GM

Retail Assets D.Jogiraju, GM

Insurance & Broking Rakesh Sethi, GM

Risk Management Rakesh Sethi, GM

Treasury B.Raj Kumar, GMHR S.R.K.Prasad, GM

Alternate Channels R.Athmaram, GM

Operations K.S.Rama Krishnan, GM

Mid-Corporate & MSME Y.Pramila Rani, GM

Microfinance & Agriculture B.Narendranath Reddy, GMSource: Bank

Branches mix

28%

27%17%

28%

Rural Semi- urban Urban Metro

72%

7%

16%

5%

Andhra Pradesh Orissa

Tamilnadu Others




ANDHRA BANK


FINANCIALSExhibit-40: Income Statement Summary


Interest Earned 5,375 6,373 8,449 10,588 13,085

Interest expended 3,748 4,178 5,719 7,152 8,873

Net Interest Income 1,627 2,195 2,730 3,436 4,212

Other Income 782 1,006 978 1,107 1,211

Fee Income 467 596 699 779 888

Trading Profits 238 325 200 225 225

Misc. Income 78 86 79 103 98

Total Income 2,409 3,200 3,708 4,543 5,423

Total Operating Expenses 1,104 1,350 1,584 1,860 2,197

Pre-provisioning Profits 1,305 1,851 2,125 2,683 3,226

Provisions & Contingencies 407 415 504 747 960

Loan Loss Provisions 170 305 421 642 806

PBT 898 1,435 1,620 1,936 2,267

Net Profit 653 1,046 1,175 1,403 1,643EPS 13 22 24 29 34

BVPS 75 91 106 124 144

Adjusted BVPS 74 89 101 117 134


Exhibit-41: Balance Sheet Summary


Networth 3,647 4,410 5,131 5,993 7,002

Deposits 59,390 77,688 94,003 114,683 141,061

Borrowings 3,351 5,852 5,852 6,352 6,852

Other Liabilities & provisions 2,141 2,480 3,230 3,777 4,617

Cash & Bank Balances 5,288 11,168 10,134 10,214 10,952

Advances 44,139 56,114 69,020 85,584 106,125

Investments 16,911 20,881 26,421 31,997 39,109

Fixed Assets & Other Assets 2,191 2,269 2,642 3,010 3,345

Total Assets 68,529 90,431 108,217 130,806 159,531


Exhibit-42: Key Ratios


LDR 74% 72% 73% 75% 75%

CASA Ratio 31% 29% 30% 30% 30%

C/I Ratio 46% 42% 43% 41% 41%

ROAA 1.04% 1.32% 1.18% 1.17% 1.13%

ROAE 19% 26% 25% 25% 25%

CAR (calculated) 13.5% 13.5% 12.1% 11.8% 11.3%

Tier I 9.0% 8.1% 7.7% 7.5% 7.2%

Tier II 4.5% 5.4% 4.4% 4.4% 4.2%

Gross NPA 0.83% 0.87% 1.22% 1.50% 1.73%

Net NPA 0.18% 0.17% 0.33% 0.37% 0.49%

Credit Cost 0.39% 0.54% 0.61% 0.75% 0.76%




ANDHRA BANK


Exhibit-43: Growth Ratios


Deposit 20% 31% 21% 22% 23%

Advances 29% 27% 23% 24% 24%

NII 21% 35% 24% 26% 23%

Fee income 8% 28% 17% 11% 14%

Opex 21% 22% 17% 17% 18%

Pre-provisioning profit 21% 42% 15% 26% 20%

Provisions 157% 2% 21% 48% 28%

PAT 13% 60% 12% 19% 17%

Book Value 12% 21% 16% 17% 17%


Exhibit-44: Spread Analysis

Spread Analysis FY 09 FY 10 FY 11E FY 12E FY 13E

Yield On Advances 10.8% 10.3% 11.0% 11.2% 11.2%

Yield On Investments 6.9% 6.3% 6.4% 6.4% 6.4%

Yield On Int Earning Assets 9.6% 8.9% 9.3% 9.7% 9.9%

Cost Of Deposits 6.4% 5.5% 6.1% 6.3% 6.5%

Cost of Funds 6.6% 5.7% 6.2% 6.5% 6.6%

Spread 2.9% 3.0% 3.0% 3.1% 3.1%

Cost on Int Earning Assets 6.7% 5.8% 6.3% 6.5% 6.7%

NIM 2.9% 3.1% 3.0% 3.1% 3.2%




ANDHRA BANK

Disclaimer:

This publication has been prepared solely for information purpose and does not constitute a solicitation to any person to buy or sell a

security. While the information contained therein has been obtained from sources believed to be reliable, investors are advised to

satisfy themselves before making any investments. Kisan Ratilal Choksey Shares & Sec Pvt Ltd., does not bear any responsibility for the

authentication of the information contained in the reports and consequently, is not liable for any decisions taken based on the same.Further, KRC Research Reports only provide information updates and analysis. All opinion for buying and selling are available to

investors when they are registered clients of KRC Investment Advisory Services. As per SEBI requirements it is stated that, Kisan Ratilal

Choksey Shares & Sec Pvt Ltd., and/or individuals thereof may have positions in securities referred herein and may make purchases or

sale thereof while this report is in circulation.

Rajiv Choksey Co-Head Institutional Equities [email protected] +91-22-6653 5135

Anuj Choksey Co-Head Institutional Equities [email protected] +91-22-6696 5500

Kunal Dalal Head Research [email protected] +91-22-6696 5574

Andhra Bank Rating Legend

Our Rating Upside

Strong Buy More than 25%

Buy 15% - 25%

Hold 10% - 15%

Reduce Nil – 10%

Sell Less than 0%

80

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Andhra

Please send your feedback to [email protected]

Visit us at www.krchoksey.com

Kisan Ratilal Choksey Shares and Securities Pvt. Ltd.

Registered Office:1102, Stock Exchange Tower, Dalal Street, Fort, Mumbai – 400 001.

Phone: 91-22-6633 5000; Fax: 91-22-6633 8060.

Branch Office:ABHISHEK, 5th Floor, Link Road, Dalia Industrial Estate, Andheri (W), Mumbai – 400 058.

Phone: 91-22-6696 5555; Fax: 91-22-6691 9576.

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