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Corporation Bank announced its 2QFY2011 results. The bank registered moderate net
profit growth of 20.6% yoy to `352cr, above our estimates of `303cr, mainly on account of
lower provisioning expenses and lower tax rate than built in by us. Advances grew strongly
by 7.7% qoq and 32.7% yoy compared to marginal industry qoq growth of ~0.6%, while
deposits increased by 6.5% qoq and 19.8% yoy compared to ~1.6% sequential industry
growth. This led to a 42.0% yoy increase in NII, in line with our estimates. Calculated NIM
declined marginally by 3bp sequentially to 2.58%. Operating costs increased by 35.9% yoy
and 7.2% qoq to `368cr. The cost-to-income ratio stood at 39.1%, substantially higher
than its eight-quarter average of 35.3%. Gross and net NPA ratios stood at 1.05% (1.11%
in 1QFY2011) and 0.39% (0.43% in 1QFY2011), respectively, implying a provision
coverage ratio of 78.5%, including write-offs (76.7% in 1QFY2011). The bank’s CAR
continued to be healthy at 14.5% with Tier-I at 8.3%.
At the CMP, the stock is trading at 1.33x FY2012E ABV, which is close to our target
multiple 1.30x FY2012E ABV for the bank. Hence, we maintain a Neutral recommendation
on the stock.
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