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Corporation Bank (CRPBK)
Banks/Financial Institutions
NIM expansion cushions credit costs. Strong NIM expansion qoq (23 bps) enabled
the bank to provide for higher credit costs for the quarter. Reduction in wholesale funds
should comfort NIMs at current levels and provide for higher-than-expected credit costs.
Slippages for the quarter declined to 1.8% and driven by one large corporate segment.
Valuations are attractive at 0.7X book and 4X FY2012 EPS delivering RoEs of 17-18%
and EPS growth of 6% CAGR over FY2012-14E. Maintain BUY.
Margin nears normalized levels; gives comfort for higher provisions
Over the past two quarters Corporation Bank has been addressing the revenue side quite well. NII
was flat yoy but improved 16% qoq due to 23 bps NIM expansion qoq. A combination of
reduction in low-yielding wholesale loans and improving lending yields resulted in margins
reaching closer to normalized levels. We believe the bank should be able to maintain/improve
NIMs from these levels as funding costs improve.
Slippages, restructured loans and credit costs are likely to remain volatile in nature as the bank has
one of the highest shares of wholesale loans: large industry comprises nearly 45% of the overall
loans. Exposure to power is nearly 10% of loans. We are revising our FY2013-14 estimates
downwards primarily to factor higher credit costs. We are building loan-loss provisions to increase
to 110-120 bps of loans for FY2013-14. At 0.7X book and 4X FY2012E EPS, valuations are
attractive, given that the underlying business generates RoE of about 18%. We maintain BUY.
Margins expand 23 bps qoq to 2.7%; over 50 bps improvement in over the past two quarters
NIMs expanded 23 bps qoq to 2.7% due to better loan re-pricing and reduction in select low
yielding wholesale loans. We believe the bank is now well positioned from a margin perspective
(50 bps improvement in the past two quarters) especially with cost of funds peaking at current
levels. Higher margins can also support higher-than-expected credit costs without impairing RoE
from current levels. For the quarter, yield on loans improved 16 bps qoq while cost of deposits
increased by 8 bps qoq.
Loan growth primarily driven by large corporate segment; low costs deposits still low
Loan growth for the quarter was at 28% yoy (13% qoq) primarily driven by large corporate
segment (45% of advances, 51% yoy). Loans to SME segment grew 60% yoy while retail loans
grew 23% yoy. Loans to agriculture grew 16% yoy. Infrastructure comprises 16% of loans with
power 9% and telecom 3% of loans. We expect the bank to deliver 15% CAGR over FY2012-14.
Deposits grew faster at 29% yoy (5% qoq). CASA ratio was extremely low at 21.1%.
Slippages at 1.8% in the quarter; restructured loans at 5%
Gross NPLs increased 16% qoq but this was primarily due to lower recovery as slippages for
the quarter declined to 1.8% against 2.6% in 2QFY12. Slippages in the quarter were
primarily from a single corporate segment – about 70 bps of loans – from the aviation
segment. Gross NPLs in the quarter were `12.4 bn (1.4% of loans) while net NPLs increased
19% qoq to `8.9 bn (1% of loans). Loan loss provisions were high at 0.9% despite lower
slippages due to NPV provisions for restructured loans. Provision coverage (including writeoff)
were stable qoq at 63%.
Restructured loans were higher at 5% (30 bps qoq increase) of loans primarily due to one
large restructuring from the telecom vertical.
Other operational highlights for the quarter
Cost-income ratio for the quarter was at 37% as compared to 39% in September 2011.
Operating expenses grew 29% yoy primarily on the back of higher employee costs.
Non-interest income grew sharply by 67% yoy to `4.4 bn on the back of strong treasury
gains and forex income. Core fee income grew 28% yoy. Treasury gains were strong at
`1.1 bn. Forex income grew 74% yoy to `561 mn. Income from written-off accounts
more than doubled yoy.
Total CAR was at 12.8% with tier-1 capital at 7.9%.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Corporation Bank (CRPBK)
Banks/Financial Institutions
NIM expansion cushions credit costs. Strong NIM expansion qoq (23 bps) enabled
the bank to provide for higher credit costs for the quarter. Reduction in wholesale funds
should comfort NIMs at current levels and provide for higher-than-expected credit costs.
Slippages for the quarter declined to 1.8% and driven by one large corporate segment.
Valuations are attractive at 0.7X book and 4X FY2012 EPS delivering RoEs of 17-18%
and EPS growth of 6% CAGR over FY2012-14E. Maintain BUY.
Margin nears normalized levels; gives comfort for higher provisions
Over the past two quarters Corporation Bank has been addressing the revenue side quite well. NII
was flat yoy but improved 16% qoq due to 23 bps NIM expansion qoq. A combination of
reduction in low-yielding wholesale loans and improving lending yields resulted in margins
reaching closer to normalized levels. We believe the bank should be able to maintain/improve
NIMs from these levels as funding costs improve.
Slippages, restructured loans and credit costs are likely to remain volatile in nature as the bank has
one of the highest shares of wholesale loans: large industry comprises nearly 45% of the overall
loans. Exposure to power is nearly 10% of loans. We are revising our FY2013-14 estimates
downwards primarily to factor higher credit costs. We are building loan-loss provisions to increase
to 110-120 bps of loans for FY2013-14. At 0.7X book and 4X FY2012E EPS, valuations are
attractive, given that the underlying business generates RoE of about 18%. We maintain BUY.
Margins expand 23 bps qoq to 2.7%; over 50 bps improvement in over the past two quarters
NIMs expanded 23 bps qoq to 2.7% due to better loan re-pricing and reduction in select low
yielding wholesale loans. We believe the bank is now well positioned from a margin perspective
(50 bps improvement in the past two quarters) especially with cost of funds peaking at current
levels. Higher margins can also support higher-than-expected credit costs without impairing RoE
from current levels. For the quarter, yield on loans improved 16 bps qoq while cost of deposits
increased by 8 bps qoq.
Loan growth primarily driven by large corporate segment; low costs deposits still low
Loan growth for the quarter was at 28% yoy (13% qoq) primarily driven by large corporate
segment (45% of advances, 51% yoy). Loans to SME segment grew 60% yoy while retail loans
grew 23% yoy. Loans to agriculture grew 16% yoy. Infrastructure comprises 16% of loans with
power 9% and telecom 3% of loans. We expect the bank to deliver 15% CAGR over FY2012-14.
Deposits grew faster at 29% yoy (5% qoq). CASA ratio was extremely low at 21.1%.
Slippages at 1.8% in the quarter; restructured loans at 5%
Gross NPLs increased 16% qoq but this was primarily due to lower recovery as slippages for
the quarter declined to 1.8% against 2.6% in 2QFY12. Slippages in the quarter were
primarily from a single corporate segment – about 70 bps of loans – from the aviation
segment. Gross NPLs in the quarter were `12.4 bn (1.4% of loans) while net NPLs increased
19% qoq to `8.9 bn (1% of loans). Loan loss provisions were high at 0.9% despite lower
slippages due to NPV provisions for restructured loans. Provision coverage (including writeoff)
were stable qoq at 63%.
Restructured loans were higher at 5% (30 bps qoq increase) of loans primarily due to one
large restructuring from the telecom vertical.
Other operational highlights for the quarter
Cost-income ratio for the quarter was at 37% as compared to 39% in September 2011.
Operating expenses grew 29% yoy primarily on the back of higher employee costs.
Non-interest income grew sharply by 67% yoy to `4.4 bn on the back of strong treasury
gains and forex income. Core fee income grew 28% yoy. Treasury gains were strong at
`1.1 bn. Forex income grew 74% yoy to `561 mn. Income from written-off accounts
more than doubled yoy.
Total CAR was at 12.8% with tier-1 capital at 7.9%.
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