Allahabad Bank’s profit growth of 14% Y-o-Y at INR 2.4 bn in Q2FY08 was ahead of expectations. However, this growth was buoyed by lower tax provisioning (10%) and higher treasury gains (INR 359 mn). Core business performance remained muted with merely 17% Y-o-Y growth in advances and lower-than-expected growth in net interest income at 13% Y-o-Y. The bank’s pre-provisioning operating profit grew by 23% supported by strong treasury gains and a 40.9% growth in the trading income yoy.
The operating expenses grew by a moderate 11.1% yoy which helped the bank in reporting a better operating profit growth of 23.2% yoy. The core operating profit growth was at 19.3% yoy but declined by 13% sequentially. The asset quality remained stable on a sequential basis with the net non-performing asset (NPA) at 0.75% as in September 2007.
At the current market price of Rs95, the stock is quoting at 4.4x its FY2009E EPS, 2.8x PPP and 0.9x BV. One can BUY the stock with a price target of Rs125 and can also hold for long term.