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Key Takeaways
Asset quality to remain under pressure
In 1QFY12 Central Bank of India's (CBOI) slippage was ~INR6b (annualized slippage
ratio of 1.8% compared with 1.3% in FY11), of which the management stated about
INR3b was technical in nature.
CBOI has not yet moved to system-based recognition of NPA and expects to transit
its portfolio through system-based recognition of NPA over the next two quarters
(has received government approval), which will keep slippages at an elevated level.
Credit monitoring is a key focus area for CBOI and management guidance is to
contain FY12 GNPA and NNPA below 2.25% and 1% respectively.
CBOI FY12 margin to be 3%+
In 1QFY12 reported margins declined ~50bp to 3%, but adjusted for interest on IT
refund in 4QFY11 the decline would have been ~15bp.
While the cost of deposits is increasing, ~73% of assets are on a floating rate basis,
which enables the bank to swiftly pass on the impact of rising cost of funds and
maintain margins at ~3%.
CASA growth was healthy(15% YoY in 1QFY12) led by strong traction in saving
deposits (17% YoY in 1QFY12), which will help CBOI to contain the cost of funds.
The management expects traction in savings deposits to continue and guidance is
for SA deposits growth of 20%+ in FY12.
Focus on profitability, efficiency rather than growth
CBOI has a strong franchise network of 3,800+ branches, which is underleveraged
with asset/branch of INR574m (v/s an average of ~INR910m) and business/branch
of INR850m (v/s an average of INR1.3b) leaving ample scope for improvement.
The management has now assigned the responsibility of business to zonal offices
rather than mere administrative functions. This will strengthen the sanctioning
process and reduce turnaround time, leading to better productivity.
Valuation and view
With the new management's focus on profitable growth CBOI's core performance is
expected to improve in the coming quarters, but asset quality pressure will act as
on overhang on the stock. It trades at 3.6x FY11 EPS of INR28 and 0.8x FY11 BV.
Not Rated.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key Takeaways
Asset quality to remain under pressure
In 1QFY12 Central Bank of India's (CBOI) slippage was ~INR6b (annualized slippage
ratio of 1.8% compared with 1.3% in FY11), of which the management stated about
INR3b was technical in nature.
CBOI has not yet moved to system-based recognition of NPA and expects to transit
its portfolio through system-based recognition of NPA over the next two quarters
(has received government approval), which will keep slippages at an elevated level.
Credit monitoring is a key focus area for CBOI and management guidance is to
contain FY12 GNPA and NNPA below 2.25% and 1% respectively.
CBOI FY12 margin to be 3%+
In 1QFY12 reported margins declined ~50bp to 3%, but adjusted for interest on IT
refund in 4QFY11 the decline would have been ~15bp.
While the cost of deposits is increasing, ~73% of assets are on a floating rate basis,
which enables the bank to swiftly pass on the impact of rising cost of funds and
maintain margins at ~3%.
CASA growth was healthy(15% YoY in 1QFY12) led by strong traction in saving
deposits (17% YoY in 1QFY12), which will help CBOI to contain the cost of funds.
The management expects traction in savings deposits to continue and guidance is
for SA deposits growth of 20%+ in FY12.
Focus on profitability, efficiency rather than growth
CBOI has a strong franchise network of 3,800+ branches, which is underleveraged
with asset/branch of INR574m (v/s an average of ~INR910m) and business/branch
of INR850m (v/s an average of INR1.3b) leaving ample scope for improvement.
The management has now assigned the responsibility of business to zonal offices
rather than mere administrative functions. This will strengthen the sanctioning
process and reduce turnaround time, leading to better productivity.
Valuation and view
With the new management's focus on profitable growth CBOI's core performance is
expected to improve in the coming quarters, but asset quality pressure will act as
on overhang on the stock. It trades at 3.6x FY11 EPS of INR28 and 0.8x FY11 BV.
Not Rated.
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