**[investwise]** Andhra Bank-Buy (FY10 EPS Rs 21; ABV-1, Dividend Yield 5%)

 

We expect net interest income (NII) to grow 25% YoY (~10% QoQ) to Rs5.7b due to improved margins backed by falling cost of deposits. On a low base, we expect loan growth to remain strong at 20%+ YoY.   􀂄 We expect lower other income, led by both lower trading gains (~50% sequential decline) and muted fee income growth. Fees growth will stay dismal (QoQ and YoY) considering the high base.   􀂄 Provisions were lower in 2QFY10 due to depreciation write back of Rs165m on investments. We have modeled higher provisions for NPAs conservatively for 3QFY10.   􀂄 Operating expenses are expected to remain flat YoY and QoQ. 3QFY09 and 2QFY10 had a provision for wage revisions at ~Rs200m.   􀂄 The stock trades at 1x FY11E BV and 0.9x FY12E BV. The stock also offers an attractive dividend yield of ~4.9%.   Maintain Buy. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.   Nothing in this article is, or should be construed as, investment advice.

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