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Corporation Bank (CRBK.BO)
Hold: 3Q11 Results; Holds Quantitatively, But Asset Quality Weak
3Q11 profits up 25% on NIM expansion, but asset quality weak — Corp bank’s
3Q11 profits were up 25% yoy (9% above our estimates) led by healthy loan
growth and a surprise NIM expansion, but this was partly offset by a sharp
increase in NPLs and credit costs. Quantitatively it was a good quarter, but
qualitatively there were signs of weakness – asset quality remains weak, margins
are likely to decline and funding mix remains well below best-of-breed peers.
P&L: Surprise uptick in margins, sluggish fees and high credit costs — Key
highlights of Corp bank’s 3Q11 income statement were – a) Surprise 9bps NIM
expansion, though its modest deposit franchise will likely impact margins
negatively hereon; b) Sluggish fee growth – core fee growth in single digits (+8%);
c) Some pressure on operating expenses – while it remains amongst the best in
the industry, near-term pension-related pressures are likely; and d) Sharp rise in
credit costs (to 1.5% annualized), as slippages jumped up sharply in 3Q.
Balance sheet: Healthy loan growth, modest funding and uptick in NPLs —
Corp bank’s loan growth remains healthy at 27% yoy, with mgmt confident of 25%
for FY11E, but we expect challenges. Its funding mix remains modest with a 24%
low-cost deposit ratio (marginally down from 25% in 2Q) and will impact cost of
funding in a tight liquidity environment. Key negative surprise however came from
a sharp jump in NPLs (+23% qoq) as key large accounts slipped in 3Q (1.8%
slippage). Overall however, NPLs remain under control at 1.3% (73% coverage).
Asset quality will be an overhang, but stock has corrected, Maintain Hold —
We believe the asset-quality weakness will remain an overhang on the stock near
term and so will the tight liquidity and expected decline in NIMs. However, the
stock has already corrected sharply (down 27% in last three months). We raise our
EVA based our target to Rs640 as well roll forward to March 2012. Our benchmark
valuation multiple remains unchanged at 1.1x FY12E. Maintain Hold (2M).
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Corporation Bank (CRBK.BO)
Hold: 3Q11 Results; Holds Quantitatively, But Asset Quality Weak
3Q11 profits up 25% on NIM expansion, but asset quality weak — Corp bank’s
3Q11 profits were up 25% yoy (9% above our estimates) led by healthy loan
growth and a surprise NIM expansion, but this was partly offset by a sharp
increase in NPLs and credit costs. Quantitatively it was a good quarter, but
qualitatively there were signs of weakness – asset quality remains weak, margins
are likely to decline and funding mix remains well below best-of-breed peers.
P&L: Surprise uptick in margins, sluggish fees and high credit costs — Key
highlights of Corp bank’s 3Q11 income statement were – a) Surprise 9bps NIM
expansion, though its modest deposit franchise will likely impact margins
negatively hereon; b) Sluggish fee growth – core fee growth in single digits (+8%);
c) Some pressure on operating expenses – while it remains amongst the best in
the industry, near-term pension-related pressures are likely; and d) Sharp rise in
credit costs (to 1.5% annualized), as slippages jumped up sharply in 3Q.
Balance sheet: Healthy loan growth, modest funding and uptick in NPLs —
Corp bank’s loan growth remains healthy at 27% yoy, with mgmt confident of 25%
for FY11E, but we expect challenges. Its funding mix remains modest with a 24%
low-cost deposit ratio (marginally down from 25% in 2Q) and will impact cost of
funding in a tight liquidity environment. Key negative surprise however came from
a sharp jump in NPLs (+23% qoq) as key large accounts slipped in 3Q (1.8%
slippage). Overall however, NPLs remain under control at 1.3% (73% coverage).
Asset quality will be an overhang, but stock has corrected, Maintain Hold —
We believe the asset-quality weakness will remain an overhang on the stock near
term and so will the tight liquidity and expected decline in NIMs. However, the
stock has already corrected sharply (down 27% in last three months). We raise our
EVA based our target to Rs640 as well roll forward to March 2012. Our benchmark
valuation multiple remains unchanged at 1.1x FY12E. Maintain Hold (2M).
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