For the long haul

The question that most investors will ask about the Allahabad Bank issue is whether the disappointment with the Punjab National Bank (PNB)listing will be repeated.

The market price on Tuesday hovered around a premium of around 13 to 14 per cent over the issue price at the higher end of the band.

Allahabad Bank's fundamentals are good "" for the quarter ended December 2004 advances increased by 41 per cent y-o-y. That aggressive growth should help offset the absence of profits on sale of investments, which have dropped off a cliff for the banking sector as a whole.

The bank has shown a decent y-o-y rise in net interest income, although the sequential increase in the December quarter over the September one was nothing to write home about. The spread between the yield on funds and the cost of funds has widened sharply in the December quarter. Restated net non-performing assets were 2.32 per cent of net advances.

At Rs 82, the higher end of the price band, the issue is priced more or less in line with valuations in the sector.

But then, PNB's fundamentals too were good, and the pricing was not over aggressive. So what makes the Allahabad Bank issue different? The issue is of 10 crore shares, which means that dilution (on pre-issue capital) will be 28.8 per cent.

Year-on-year net profit growth has been much higher. PNB's dilution was lower, after taking into account its capital reduction. With the government share falling to 55 per cent after the issue, Allahabad Bank's floating stock will double.

In PNB's case, floating stock went up by 150 per cent. FIIs held more than 14 per cent of PNB stock pre-issue, while they hold slightly more than 1 per cent in Allahabad Bank. And finally, the Allahabad Bank issue is much smaller than PNB's.

But perhaps the approach to the Allahabad Bank issue is not to aim for listing gains but instead, given the continuing strength of credit growth and the improvement in the bank's performance, take the issue as an opportunity to invest for the longer-term at a reasonable price.