During 4Q FY 2012, Corporation Bank registered flatyear on year growth in net profit to
Rs.351cr, which was below our estimates mainly on account of lower-than-expected
operating income (due to lower NIM) and higher-than-expected provisioning.
Key positive from the results was stability seen on the asset quality front.
We recommend Buy on the stock.
Business growth healthy; asset quality stable:
Advances for the bank grew at a healthy pace of 8.8 % quarter on quarter, largely driven by segments such as retail, SME and agri.
Deposits also grew by healthy 7.5 % quarter on quarter. CASA ratio for the bank declined by
3.83 % year on year to 22.1%, on the back of a 12.5 % year on year decline witnessed in current
account deposits despite reasonable 9.7 % year on year growth in saving deposits.
Sequential dip in yield on advances by 0.2%, coupled with quarter on quarter an increase of 0.39% cost of
deposits, led to a quarter on quarter decline in reported NIM by 0.25% to 2.41 %.
Non-interest income excl. treasury dipped by 19.9 % year on year to Rs. 327 cr, mainly on the back of a
15.3 % year on year decline in fee income to Rs. 236 cr and lower recoveries from written-off
accounts (Rs.38 cr in 4Q FY 2012 compared to Rs. 93 cr in 4Q FY 2011).
The bank’s asset quality continued to remain at stable levels, with both gross and net NPA ratio
declining sequentially by 9bp and annualized slippage ratio at comfortable levels of
0.75%.
Provision coverage ratio also improved by 2.42% quarter on quarter to 65.3 %. The bank’s
restructured book grew sharply during the quarter by Rs.3,000 cr (absolute increase
of 66.1% quarter on quarter) to Rs.7,539 cr, which primarily included accounts of Air India and
Rajasthan SEBs.
Going forward, management guided that Rs.600 cr advance to
U.P. discom is the only major advance in restructuring pipeline, while adding that
there would be no NPV loss on any SEB advances.
Outlook and valuation:
The Corporation bank’s low CASA ratio (22.1 % as of FY 2012) has
contributed to higher margin pressures.
However, currently the stock is trading at 0.5x FY2014E ABV, one of the cheapest in the industry, which we believe provides
sufficient margin of safety.
Target Price Rs. 522
Investment Period 12 Months
Rs.351cr, which was below our estimates mainly on account of lower-than-expected
operating income (due to lower NIM) and higher-than-expected provisioning.
Key positive from the results was stability seen on the asset quality front.
We recommend Buy on the stock.
Business growth healthy; asset quality stable:
Advances for the bank grew at a healthy pace of 8.8 % quarter on quarter, largely driven by segments such as retail, SME and agri.
Deposits also grew by healthy 7.5 % quarter on quarter. CASA ratio for the bank declined by
3.83 % year on year to 22.1%, on the back of a 12.5 % year on year decline witnessed in current
account deposits despite reasonable 9.7 % year on year growth in saving deposits.
Sequential dip in yield on advances by 0.2%, coupled with quarter on quarter an increase of 0.39% cost of
deposits, led to a quarter on quarter decline in reported NIM by 0.25% to 2.41 %.
Non-interest income excl. treasury dipped by 19.9 % year on year to Rs. 327 cr, mainly on the back of a
15.3 % year on year decline in fee income to Rs. 236 cr and lower recoveries from written-off
accounts (Rs.38 cr in 4Q FY 2012 compared to Rs. 93 cr in 4Q FY 2011).
The bank’s asset quality continued to remain at stable levels, with both gross and net NPA ratio
declining sequentially by 9bp and annualized slippage ratio at comfortable levels of
0.75%.
Provision coverage ratio also improved by 2.42% quarter on quarter to 65.3 %. The bank’s
restructured book grew sharply during the quarter by Rs.3,000 cr (absolute increase
of 66.1% quarter on quarter) to Rs.7,539 cr, which primarily included accounts of Air India and
Rajasthan SEBs.
Going forward, management guided that Rs.600 cr advance to
U.P. discom is the only major advance in restructuring pipeline, while adding that
there would be no NPV loss on any SEB advances.
Outlook and valuation:
The Corporation bank’s low CASA ratio (22.1 % as of FY 2012) has
contributed to higher margin pressures.
However, currently the stock is trading at 0.5x FY2014E ABV, one of the cheapest in the industry, which we believe provides
sufficient margin of safety.
Target Price Rs. 522
Investment Period 12 Months
Review By Angel Broking
6th Floor, Ackruti Star
Central Road,MIDC
Andheri (E) , Mumbai-93
Main : (91-22) 3935 7600 Extn : 6956
Website : www.angelbroking.com
angelresearch@angelbroking.com <angelresearch@angelbroking.com>
Vaibhav Agrawal
022 – 3935 7800 Ext: 6808
vaibhav.agrawal@angelbroking.com
Varun Varma
022 – 3935 7800 Ext: 6847
varun.varma@angelbroking.com
Sourabh Taparia
022 – 3935 7800 Ext: 6872
sourabh.taparia@angelbroking.com
Research Team Tel: 022 - 39357800 E-mail: research@angelbroking.com Website: www.angelbroking.com
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