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stock of Andhra Bank can be considered at the prevailing price.
The stock is trading at a price-to-earnings multiple (PEM) of nearly
December 2004. The earnings for this period includes some non-recuring
expenses and the PEM is overstated to that extend.
Andhra Bank is confortably placed in terms of both capital adequacy
and the propertion of bad loans. The bank thus has relatively greater
flexibility to increase balance sheet size in pursuit of profit
growth. These factors also place the bank in a position to maintain
growth in dividends.
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Andhra
Bank is one of the smaller public sector banks with a regional focus.
Most of its branches are located with in Andhra Pradesh. The bank has
been growing rapidly and is also one of the most profitable banks in the
country with a return on net worth in excess of 20 per cent in each of
the past five years.
The bank’s growth potential as well as relatively clean protfolio
of advances should also allow the bank to raise capital on favourable
terms. Capital mobilasation would become necessary to accommodate growth
and changes in regulations relating to minium capital requirements. Investments
can be considered with a long-term perspective.
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