Tuesday, February 12, 2013

Buy Allahabad Bank: Price to Book Value Attractive

Public Sector Banks has had decent run up in January this year in anticipation of easing NPA pressure but surprisingly that happened for only select public sector banks and majority of them are still witnessing incremental NPA problems. 

Allahabad bank too witnessed incremental growth in bad assets with net NPA at Rs 24.76 billion for the quarter ended Dec. 31, 2012, as compared to Rs 7.96 billion for the quarter ended Dec. 31, 2011, representing an increase of 3.11 times. Consequently the bank reported a fall of 44.54% in net profit to Rs 3.11 billion for the quarter ended Dec. 31, 2012 as compared to Rs 5.60 billion in the same period last year.

The stock fell from 186 level since second week of Jan to 147 as on 12th Feb, a swift cut of around 21%, making it attractive for medium to long term investors based on valuation and asset quality concerns being priced in.

Allahabad bank's expected book value for FY-13, FY-14 and FY-15 are approximately 210, 230 and 250 respectively. Considering investment period of 9 to 12 months and a PBV of 0.8 times for FY- 2015 the recommended exit price for the stock is Rs 200 a possible appreciation of almost 36%,excluding dividend, from current level of 147. Considering a dividend per share of Rs 5 this fiscal, total return expected form the stock over a period of 9-12 months is around 40%.

Technically the stock has a strong support at 130 and the stock could come close to this level in couple of months if there is any major weakness in Indian Stock Market. Hence investors should stagger their purchase and accumulate shares at every fall over a period of time.

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