Over the last one year, Centurion Bank has hogged the limelight as a takeover target. Only recently, Indusind Bank was believed to be a front runner in acquiring a controlling stake in the bank. However, Indusind Bank has finally opted out and Andhra Bank is moving in to take over this private sector bank.
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Andhra Bank is a healthy public sector bank, which has reported 67% growth in FY02 earnings and net interest income growth of 15%. The bank improved operating margins sharply to 6% in FY02 by launching a successful VRS in FY01. On the other hand, Centurion Bank posted net operating loss (excluding fee based income) of Rs 400 m in FY01. Although, the bank reported healthy growth of 26% in net interest income, higher operating cost and provision for non-performing assets (NPAs), trimmed Centurion's bottomline. The bank has not yet declared its full year ended March 2002 results. As per newspaper reports, Centurion Bank is expected to post a net loss of over Rs 1 bn in FY03. The finance ministry is working with the RBI on a rescue plan for Centurion Bank whose capital adequacy ratio would be around 4% in FY03, as against the RBI stipulated 9%.
If the takeover goes through, it will be the first instance of a listed public sector bank taking over a listed private sector bank. Andhra Bank is expected to get a line of credit amounting to Rs 1 bn to buy Centurion Bank.
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While Centurion Bank is struggling for business expansion (due to lack of adequate capital), Andhra Bank had strong CAR of 13% as on March 2002. Andhra Bank's net NPAs to advances ratio stood at 3% as on March 2001. If the bank were to merge Centurion Bank, then its financials will get impacted due to subdued performance of Centurion Bank. The deal is expected to get finalised by mid September. Considering Centurion Bank's financial position, it is difficult to ascertain the price at which it would be sold to Andhra Bank.
However, the acquisition of Centurion Bank would help Andhra Bank in increasing its presence in western region. Currently, Centurion Bank has total 60 branches across India. As on March 2001, its deposit base stood at Rs 35 bn and advances at Rs 20 bn. Andhra Bank can also widen its retail loan portfolio, as Centurion Bank is focusing towards retail loans.
At the current market price of Rs 14, Andhra Bank is trading at a P/E of 3x FY02 earnings and price to book value ratio (before adjusting for NPAs) of 0.7x. The bank declared dividend of 14% in FY02. Andhra Bank's future valuations depend on the swap ratio at which it will acquire Centurion Bank.
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