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For 2QFY2012, Corporation Bank registered net profit growth of 14.0% yoy to
`401cr, above our estimate of `349cr, mainly on account of better-thanexpected
treasury income and a lower effective tax rate than built-in by us. We
recommend Buy on the stock.
Advances growth healthy; Asset quality surprises negatively: During 2QFY2012,
the bank’s advances increased by 17.0% yoy to `81,634cr, while deposits grew by
healthy 24.4% yoy to `120,613cr. Current account deposits witnessed high traction
during the quarter, growing by 12.3% qoq (2.6% yoy), while saving account growth
was moderate at 2.7% qoq (12.1% yoy). CASA ratio managed to improve by 75bp
to 21.8%. The bank’s yield on advances grew sequentially by 60bp; however, cost
of deposits also increased by 29bp qoq, leading to reported NIM remaining flat at
2.4%. During 2QFY2012, other income increased by 76.3% yoy to `399cr, driven
by strong treasury gains (`123cr in 2QFY2012 compared to `4cr in 2QFY2011).
The bank surprised negatively on the asset-quality front, with absolute gross and net
NPAs rising sharply by 27.3% qoq and 81.0% qoq. Consequently, gross and net
NPA ratios deteriorated to 1.3% (from 1.1% in 1QFY2012) and 0.9% (from 0.5% in
1QFY2012), respectively. Slippages for the quarter stood at `510cr (annualized
slippage ratio of 2.3% compared to 0.8% in 1QFY2012). Management attributed
the rise in slippages to system-based NPA recognition and sounded confident of
stronger recoveries going ahead in 2HFY2012.
Outlook and valuation: The bank’s low CASA ratio (~22%) has contributed to
higher margin pressures, given the prevailing high interest rates. However, on the
flip side, the bank would be less impacted by savings deregulation and also
peaking of interest rates bodes well for it. Currently the stock is trading at 0.7x
FY2013E ABV, which we believe provides a margin of safety from current macro
headwinds. Also, the key positive for the bank is its proactive investment in modern
distribution and payment systems, which has led to consistently faster CASA growth
compared to peers. We value the bank at 0.8x FY2013E ABV and recommend a
Buy rating on the stock with a target price of `498.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
For 2QFY2012, Corporation Bank registered net profit growth of 14.0% yoy to
`401cr, above our estimate of `349cr, mainly on account of better-thanexpected
treasury income and a lower effective tax rate than built-in by us. We
recommend Buy on the stock.
Advances growth healthy; Asset quality surprises negatively: During 2QFY2012,
the bank’s advances increased by 17.0% yoy to `81,634cr, while deposits grew by
healthy 24.4% yoy to `120,613cr. Current account deposits witnessed high traction
during the quarter, growing by 12.3% qoq (2.6% yoy), while saving account growth
was moderate at 2.7% qoq (12.1% yoy). CASA ratio managed to improve by 75bp
to 21.8%. The bank’s yield on advances grew sequentially by 60bp; however, cost
of deposits also increased by 29bp qoq, leading to reported NIM remaining flat at
2.4%. During 2QFY2012, other income increased by 76.3% yoy to `399cr, driven
by strong treasury gains (`123cr in 2QFY2012 compared to `4cr in 2QFY2011).
The bank surprised negatively on the asset-quality front, with absolute gross and net
NPAs rising sharply by 27.3% qoq and 81.0% qoq. Consequently, gross and net
NPA ratios deteriorated to 1.3% (from 1.1% in 1QFY2012) and 0.9% (from 0.5% in
1QFY2012), respectively. Slippages for the quarter stood at `510cr (annualized
slippage ratio of 2.3% compared to 0.8% in 1QFY2012). Management attributed
the rise in slippages to system-based NPA recognition and sounded confident of
stronger recoveries going ahead in 2HFY2012.
Outlook and valuation: The bank’s low CASA ratio (~22%) has contributed to
higher margin pressures, given the prevailing high interest rates. However, on the
flip side, the bank would be less impacted by savings deregulation and also
peaking of interest rates bodes well for it. Currently the stock is trading at 0.7x
FY2013E ABV, which we believe provides a margin of safety from current macro
headwinds. Also, the key positive for the bank is its proactive investment in modern
distribution and payment systems, which has led to consistently faster CASA growth
compared to peers. We value the bank at 0.8x FY2013E ABV and recommend a
Buy rating on the stock with a target price of `498.
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