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Well-diversified loan book; firm credit growth to continue
Corporation Bank’s advances have almost doubled over FY09-11 witnessing
34% CAGR. Despite growing at fast clip, the bank has not compromised on
asset quality enjoying one of the lowest Net NPL/Networth ratios. Post
credit de-growth of 6% in H1 FY12, loan book increased by robust 13.2%
qoq in Q3 FY12 largely driven by corporate and agricultural lending.
Agriculture & SME credit growth will remain elevated in Q4 FY12 owing to
seasonality and requirement of meeting the PSL target. With bank
targeting Rs980bn advances by Mar’12, we estimate credit growth at 13-
14% in FY12. An improvement in industrial activity and cyclical decline in
interest rate would drive 18% loan CAGR over FY12-14E.
Traditionally has reported lower GNPA; risk is comparatively lower
Corporation Bank has consistently reported GNPA ratio of <1.5% over
FY08-FY11, lower than most PSU Banks. Bank has a track-record of robust
recovery which has contained asset quality deterioration. Asset quality has
weakened though over the past few quarters on account of migration to
system-driven NPL recognition and few large corporate accounts turning
bad. Restructuring activity has picked-up and is expected to remain high in
Q4 FY12 due to significant Air India exposure. This along with low PCR is
likely to drive elevated provisioning in the near term. With respect to power
exposure, Corporation Bank is better-off than peers with majority exposure
to healthy state generation companies. We expect bank’s asset quality to
hold-up well in the medium term.
NIM to gradually improve driven by accelerated CASA mobilization
Bank’s deposit profile has weakened due to decline in CASA ratio and
consistent higher share of bulk deposits. With substantial branch addition,
Corporation Bank is confident of improving its CASA franchise in the
medium term. NIM is expected to remain stable in Q4 FY12
notwithstanding improvement in C/D ratio as strong credit expansion would
be mainly driven by lower yielding PSL book. Increased focus on higher
yielding assets and improvement in deposit profile would support a gradual
NIM expansion over FY12-14.
One of the better bets amongst mid-sized PSU Banks
Corporation Bank provides comfort on multiple fronts – reasonable
valuation vis-à-vis healthy RoA delivery, lean operating structure, healthy
capitalization, strong non-interest income growth and lower NPL risk.
Despite factoring some stress in asset quality and resultant higher
provisioning, we estimate the bank to deliver 17% earnings CAGR over
FY11-14. In our view, Corporation Bank is one of the better bets amongst
mid-sized PSU Banks to play the cyclical re-rating story. Initiate coverage
with a BUY rating and 9-month price target of Rs600.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� �
Well-diversified loan book; firm credit growth to continue
Corporation Bank’s advances have almost doubled over FY09-11 witnessing
34% CAGR. Despite growing at fast clip, the bank has not compromised on
asset quality enjoying one of the lowest Net NPL/Networth ratios. Post
credit de-growth of 6% in H1 FY12, loan book increased by robust 13.2%
qoq in Q3 FY12 largely driven by corporate and agricultural lending.
Agriculture & SME credit growth will remain elevated in Q4 FY12 owing to
seasonality and requirement of meeting the PSL target. With bank
targeting Rs980bn advances by Mar’12, we estimate credit growth at 13-
14% in FY12. An improvement in industrial activity and cyclical decline in
interest rate would drive 18% loan CAGR over FY12-14E.
Traditionally has reported lower GNPA; risk is comparatively lower
Corporation Bank has consistently reported GNPA ratio of <1.5% over
FY08-FY11, lower than most PSU Banks. Bank has a track-record of robust
recovery which has contained asset quality deterioration. Asset quality has
weakened though over the past few quarters on account of migration to
system-driven NPL recognition and few large corporate accounts turning
bad. Restructuring activity has picked-up and is expected to remain high in
Q4 FY12 due to significant Air India exposure. This along with low PCR is
likely to drive elevated provisioning in the near term. With respect to power
exposure, Corporation Bank is better-off than peers with majority exposure
to healthy state generation companies. We expect bank’s asset quality to
hold-up well in the medium term.
NIM to gradually improve driven by accelerated CASA mobilization
Bank’s deposit profile has weakened due to decline in CASA ratio and
consistent higher share of bulk deposits. With substantial branch addition,
Corporation Bank is confident of improving its CASA franchise in the
medium term. NIM is expected to remain stable in Q4 FY12
notwithstanding improvement in C/D ratio as strong credit expansion would
be mainly driven by lower yielding PSL book. Increased focus on higher
yielding assets and improvement in deposit profile would support a gradual
NIM expansion over FY12-14.
One of the better bets amongst mid-sized PSU Banks
Corporation Bank provides comfort on multiple fronts – reasonable
valuation vis-à-vis healthy RoA delivery, lean operating structure, healthy
capitalization, strong non-interest income growth and lower NPL risk.
Despite factoring some stress in asset quality and resultant higher
provisioning, we estimate the bank to deliver 17% earnings CAGR over
FY11-14. In our view, Corporation Bank is one of the better bets amongst
mid-sized PSU Banks to play the cyclical re-rating story. Initiate coverage
with a BUY rating and 9-month price target of Rs600.
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