Visit http://indiaer.blogspot.com/ for complete details For 2QFY2011, Corporation Bank reported moderate growth of 20.6% yoy in
net profit to `352cr, above our estimates of `303cr, mainly on account of lower
provisioning expenses and lower tax rate than built in by us. Steady operating
performance with stable asset quality was the key highlight of the result.
We maintain our Neutral rating on the stock.
Better-than-expected advances growth: Advances grew by strong 7.7% qoq and
32.7% yoy compared to marginal industry growth of ~0.6% qoq, while deposits
increased by 6.5% qoq and 19.8% yoy compared to ~1.6% qoq industry growth.
This led to 42.0% yoy growth in net interest income (NII), in line with our
estimates. Gross and net NPA ratio stood at 1.05% (1.11% in 1QFY2011) and
0.39% (0.43% in 1QFY2011), respectively. The provision coverage ratio
improved to 78.5%, including write-offs (76.7% in 1QFY2011).
Outlook and valuation: Within mid-cap PSU banks, we like Corporation Bank
due to its efficient operations, reflected in low operating expenses as a
percentage of average assets, healthy asset quality and proactive investments in
modern distribution and payment systems (relative to its peers). However, we
believe, it will be difficult for the bank to maintain its growth trajectory due to a
high-growth base in NII and non-interest income during FY2010, especially in a
rising interest rate environment. The bank’s relatively small, regional and
urban-centric operations also temper its growth outlook, on the key competitive
parameters of CASA and fee income. At the CMP, in our view, the stock is
trading at fair valuations of 1.4x FY2012E ABV. Hence, we maintain a Neutral
view on the stock.
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