ADBL posts highest growth among banks -- net profit to cross Rs 3 arba by Q4

ShareSansar, July 8:

Agricultural Development Bank Limited (ADBL) is all set to post highest growth among all BFIs in the country this fiscal year as its net profit is bound to cross Rs 3 arba.

The bank, which posted net profit of just Rs 1.25 arba by Baisakh, saw a meteoric rise in the profit within a month as the net profit crossed Rs 2.14 arba by Jestha, a senior official with ADBL told ShareSansar today.

“Be assured, ADBL’s net profit will cross Rs 3 arba by the fourth quarter,” he further said. “No other commercial bank in the country will even come close to it.”

As ADBL officials have been repeatedly stating, and as the financial reports of the bank over the years clearly show, this bank has been posting much more profit in the last three months of any fiscal year as compared to the rest of the year.

What does it mean to the shareholders?

Even if ADBL is to post just Rs 3 arba in net profit by the end of this fiscal year, it would entail much better dividend than 31.58 percent dividend it doled out for the last fiscal year.

In fact it can easily offer cent percent dividend this time around if we carefully read the figures.

As Durga Upreti, the executive member of Nepal Investor’s Forum, says, many investors remain repelled with ADBL’s balance sheet, which starts with its paid-up capital that stands at a staggering Rs 9.63 arba.

“But what they are apparently missing is that Rs 6.43 arba of the paid-up is irredeemable, non cumulative preference shares, and that they will be converted to 6 percent debenture in the next year (as required by the agreement with the Asian Development Bank),” he adds. “With this ADBL’s paid-up will stand at only Rs 3.2 arba. Now think about its implication to EPS and the dividend.”

In other words, even if ADBL posts just Rs 3 arba in net profit this fiscal year, it has to just set aside Rs 36 crore from the holders of the irredeemable preference shares, and astounding Rs 264 crore goes for the ordinary shareholders.

There is another important aspect of the balance sheet that many investors seem to have missed, adds Dilip Shrestha, one of the long-term investors in ADBL scrip. ADBL has kept aside 21 percent of its net profit in the reserve as retained earning.

“ADBL could have easily pledged up to 51 percent bonus for the last fiscal year alone,” says Shrestha.

Another big share investor Krishna Gopal Shrestha says that rather than being suspicious of the ADBL scrip just because it has major government holding, the investors should not forget that today ADBL remains the highest income generating bank in the country.

“ADBL has been posting much higher profit than Nabil Bank over the past few fiscal years, and is set to maintain that record in the current fiscal year, too,” he says.

“Yet another thing we need to understand is that, if we look at ADBL’s financial reports for the past few years, it usually recovers loan from the period between Baisakh and Ashad. Hence, the bank is poised to announce a massive profit rise by this fourth quarter,” Dilip Shrestha adds.

Echoing this sentiment, senior official with ADBL Prakash Subedi says, “We make more income and profit in Jestha and Ashad (from mid-May to mid-July) than the rest of the months combined,” says. “And then we already have more than Rs 7 arba in the reserve set aside for the profit to be distributed to the shareholders.”

“And, most importantly, we are set to announce significantly higher net profit than we did in the last fiscal year. Now you can guess the kind of dividend we will pledge to the shareholders for the current fiscal year,” he adds.

He further said that the non-performing loan of ADBL is also decreasing significantly by the end of the fiscal year.

It’s NPL stood at 6.43 percent at the end of the third quarter.

The strategic partnership factor

Another important aspect of ADBL that is apparently being brushed aside is the issue of its strategic partnership aimed at making ADBL more effective and efficient.

The bank has already begun the formal process of forging the strategic partnership by September as directed by the privatization cell of the Ministry of Finance as part of the reform plan recommended by the Asian Development Bank.

ADBL is currently planning to issue Expression of Interest (EoI) in the international media within July to seek applications from some of the world’s top banks for strategic partnership.

“We are expecting the special audited report to arrive from Australia by mid-July,” a senior ADBL official who is handling the process to bring strategic partner within this year told ShareSansar today. “Meanwhile, the EOI is already ready at the Ministry of Finance.”

Around two dozen world-class banks have reportedly shown interest in the deal even before the special audit has been finalized, according to ADBL sources.

He further informed that the deal with a leading international bank will be signed in a premium rate, which will be much higher than the prevailing price of ADBL in the secondary market.

The state-run ADBL is also a huge asset-based company and one with the largest network all over the country.

“We are confident that the strategic partner will be operating with us within 2014,” he added. “This will not only drastically enhance capital, technical aspects of ADBL with efficient manpower, but will also set a benchmark for rest of the commercial banks to follow.”

ADBL is seeking the strategic partnership as per the agreement reached by the government with the Asian Development Bank to divest its 30 percent of its stake in the bank by September, bringing in a strategic partner to improve the management and performance of the bank.

In February, the state-run bank had signed a contract with Dev Associates, which is affiliated to Baker Tilly International for the special international audit of the bank, officially initiating the process to forge international strategic partnership for better management and performance of the bank.

Dev Associates Chartered Accountants has been appointed as an independent member firm of Baker Tilly International with effect from October 2011. As per the deal, Dev Associates and Baker Tilly Nepal are jointly representing as Baker Tilly International member firms in Nepal.

As an audit conducted by a domestic firm is not usually recognized for global tenders, ADBL has effectively hired Barker Tilly International, which is one of the top ten global audit firms in the world that works in 131 counties across the world.