Corporation Bank|Q2FY15 First Cut Analysis | Asset quality pressure continues to persist, however tax reversals of Rs 429 mn helped to report higher than expected net profit :: IndiaNivesh

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ABB, union bank, Corporation Bank, SIB, Angel Broking - Multiple Scrips - Result Updates

Forwarding you the Multiple Scrip’s Result Updates. Kindly click on the links to view the report.

                  

ABB India  - RU1QCY2013

 

Union Bank of India - RU4QFY2013

 

Corporation Bank - RU4QFY2013

 

South Indian Bank  - RU4QFY2013

Technical: IDFC, Power Finance corp, OnMobile, Blue Star, UFLEX, Punjab Sind bank, Corporation Bank ::Business Line

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Please share the long- and short-term prospects of IDFC and Power Finance Corporation.

Jose K. Mathai

IDFC (Rs 140.6):IDFC threatened to go in to a tailspin when it declined below Rs 100 towards the end of last year. But the decline was stemmed at Rs 90 and the stock is powering ahead again. The recent trough can act as the stop for investors and they can also buy on declines with stop at Rs 85.

The medium-term resistance will be at Rs 170. If it gets past this level, it can move on to the long-term ceiling at Rs 220. The stock has already formed a double-top at this level and can struggle to move above it just yet. If it manages to do so, then next target will be Rs 264.

Long-term support below Rs 90 is Rs 44.

PFC (Rs 191.5): The scary plunge in PFC from the peak at Rs 383 halted above the long-term trough formed in October 2008. Investors can draw some comfort at this higher bottom recorded at the recent trough at Rs 131. The stock is also in a strong short-term uptrend from this trough.

Corporation Bank – BUY ‘Stable Outlook’ ::IIFL

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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.

Corporation Bank: NIM expansion cushions credit costs :: Kotak Securities

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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.

Corporation Bank Buy (Higher NIMs; sharp rise in other income maintains bottomline) ::KJMC

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Corporation Bank reported PAT of Rs 4022.2mn, up 5.2%YoY which was
above our/steet estimates. NII for the quarter was lower than estimated,
grew by 2.3%YoY mainly on account of higher interest expended. However
other income grew robustly by 67.0%YoY to Rs 4416.5mn due to which PAT
came above our estimates. With major PSU banks reporting higher NPAs,
CRPBKs GNPA remained stable at 1.35%, NNPA at 1.0%. NIMs improved
by 22bps to 2.4% sequentially.

Corporation Bank 2Q earnings beat; Maintain Buy on positive risk return 􀂄BofA Merrill Lynch,

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Corporation Bank
2Q earnings beat; Maintain Buy
on positive risk return
􀂄 2Q: +25% beat on treasury gains, offset by credit costs
Corp Bk’s 2Q earnings came in at Rs4.0bn, a 14% yoy growth and a +25% higher
than est. driven by a) treasury gains, partly offset by higher credit costs driven by
higher than estimated slippages (+2x qoq). Top-line growth modest (~4% yoy),
but ~3% ahead driven by 17% loan growth and margin decline by 45bps yoy (up
32bps qoq). Core fee growth strong (+30% yoy). CASA, while down yoy by
+320bps, is up qoq by 80bps, to ~22%.
Slippages rise +2x qoq, but asset quality is manageable
Corp Bank’s slippages increased by +2x qoq to Rs5bn driven by corporate / nonpriority
slippages. However, mgmt. is looking at corporate recovery in the ensuing
quarters. Resultantly, headline gross NPLs increased qoq by 27% (at 1.3%) and
net increased by 81% qoq (at 0.9%), provision cover at ~65% (vs. ~75% in 1Q).
We estimate FY12 slippages at ~Rs16/20bn (vs. Rs8.1bn in FY11) and credit
costs normalizing at +60/80bps in FY12/13.
Maintain Buy and PO on positive risk-return
While 2Q earnings beat was +25%, we more or less maintain our FY12/13
(earnings tweak by ~1%), as we normalize strong 2Q treasury gains and build in
higher credit costs. We maintain our Buy rating and PO, as risk-return remains
positive, with stock trading at 0.9x FY12E adj. book / 0.8x FY13E adj. book, with
RoEs of still +20%. Our PO is still at a +30% discount to Gordon theory multiples.
We believe the discount may remain owing to weak liability franchise, as also we
remain worried on its +55% SME loan growth that makes the loan profile riskier
and, low stock liquidity (Govt. & LIC own ~84% of stock).

Buy Corporation Bank- 2QFY2012 Result Update.. Angel Broking

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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.

Corporation Bank: Recovering slowly :: Kotak Sec

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Corporation Bank (CRPBK)
Banks/Financial Institutions
Recovering slowly. Corporation Bank’s reported earnings were ahead of our estimates
on the back of strong growth in non-interest income and lower tax rate. Importantly,
the bank is now on margin improvement course driven by shift in loan mix and less
dependent on the wholesale-funded business. Balance sheet has been cleaned (with the
migration exercise) resulting in sharp increase in NPLs. While risks remain high, the bank
will still deliver 18% RoE and trades at 0.8X FY2012E book. We retain BUY with a TP of
`600 (`630 earlier), largely on inexpensive valuations.

BUY Corporation Bank - Superior Return Ratio demands Valuation ::KJMC

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South based Corporation Bank (CRPBK IN) is a mid sized state owned government
bank (GoI holding 58.5%) with a network of 1362 branches and balance sheet size
of Rs 1.4trillion. Having its dominant presence in Southern parts of India with
more than 50% branches, bank is trying to diversify its geographical distribution by
adding 150 branches in FY12 particularly in Western and Northern parts; has added
206 branches in FY11. We like Corporation Bank due to its aggressive branch
addition, enjoying best asset quality in class & robust business mix growth. With
all the banks facing interest rate pressure, NIMs of the bank will also be under
pressure in FY12 which has been factored in its current price.
At CMP of 415, the bank is trading at an attractive valuation of 0.7x FY13E ABV. We
initiate coverage on Corporation bank with “BUY” rating with a price target of Rs
601 (i.e. discounting FY13E by 1.0x, an upside of 45% from current levels).
Key Highlights
Robust business mix growth: CRPBK has been very aggressive in growing its business
mix with advances growing by 30% CAGR over FY08‐11 way above industry levels.
Although, trend doesn’t seems to continue in FY12 due to rising interest rate regime.
Thus, we have assumed 22% YoY growth in its advances in FY12E which we assume
as lowest assumption looking at the last five years growth in advances. Currently,
bank has crossed its business mix of Rs 2trillion and going forward it is expected to be
at Rs 2.5 trillion in FY12E.
Aggressive branch addition to continue in FY12: In comparison with its peer group,
bank has added highest number of 206 branches in FY11. Currently, it has around
1362branches and is expected to add another 150 branches against management
guidance of 200 branches in FY12E which will be used to draw CASA in the longer
run.
Asset Quality best in class: Gross NPAs of the bank stood at 1.1% which is considered
to be best in class as compared to its peers. However, it is expected to rise marginally
to 1.2% in FY12 due to slowdown in the economy.
Superior return ratios demand Valuation: CRPBK has been consistent in delivering
strong RoANW and RoAA above 20% and 1% respectively in last two years. In FY11,
RoE and RoA stood at 21.9% and 1.1% respectively reflecting its strong performance
in the bottom line. However, we expect decline in both RoANW and RoA in FY12 to
19.1% and 0.9% due to higher interest cost impacting bottom line which will improve
back in FY13 to 21.3% and 1% respectively.

Corporation Bank Core profitability under pressure ACCUMULATE :Emkay

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Corporation Bank

Core profitability under pressure

ACCUMULATE

CMP: Rs515                                        Target Price: Rs570

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n     CRPBK’s Q1FY12 NII below expectation at Rs7.1bn, however PAT at Rs3.5bn inline with market expectation led by lower tax and provisioning during the quarter

n     The NII grew by just 1.4% yoy to Rs7.1bn, led by 9.1%qoq decline in advances and more than expected contraction of 42bps in NIM’s. NIM’s stood abysmally low at 2.1%

n     Though gross NPA increased by 7.3%qoq to Rs8.5bn, fresh slippages remain under control at Rs~1.7bn for the quarter with slippage rate under <1% (annualised).

n     Bank faces headwinds on NIMs due to its low CASA but valuations unreasonable at 1.0x/0.9x FY12E/FY13 ABV with 18% RoEs. Maintain ACCUMULATE with TP of Rs570

Corporation Bank- Contraction in margins; we lower estimates but retain a Buy ::anand rathi,

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Corporation Bank
Contraction in margins; we lower estimates but retain a Buy
On our assumptions of lower loan growth and NIM, we reduce
FY12-13 EPS estimates for Corporation Bank by ~4%. We value
the bank at 1.3x 1HFY12 BV and maintain a price target of `786.
We retain a Buy based on the favorable risk-reward at a PBV of
0.8x FY13e, given 0.9% RoA and ~19% RoE over FY11-14e.
 Credit growth moderates. After rising 37.4% yoy (and 20.7%
qoq) in 4QFY11, credit growth moderated to ~22%. Deposit
growth rose to 29.4% yoy, but was flat qoq. We expect credit and
deposits to grow ~21% in FY12.
 NIM declined steeply; likely to bounce back. In 1QFY12,
credit-deposits slipped to 67% vs. 74.4% in 4QFY11 due to a qoq
drop in advances. Further, lower CASA and high reliance on bulk
deposits led to a ~40bps decline in NIM. Hence, net interest
income was flat yoy and declined 7.1% qoq. We expect FY12
NIM to settle at 2.2-2.3% (~30bps decline yoy) on better creditdeposits and increase in lending yields.
 Asset quality stable. Gross NPAs rose 7.1% qoq; however,
slippage was contained at ~0.75%. Asset quality continues to be
healthy, with net NPAs of 0.52% and NPA coverage ratio of
1.07%.  
 Valuation and Risks. At our Sep ’12 target price of `786, the
stock would trade at a PBV of 1.3x FY12e and 0.9x FY13e. We
introduce FY14 estimates and expect 19.8% CAGR in profits over
FY11-14. Key risks: continuing macro headwinds and thereby
slower loan growth, margin contraction and higher NPA costs.

Corporation Bank: Strong loan growth ::CLSA

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Strong loan growth
During 4QFY11, Corporation Bank’s net profit of Rs3.5bn (up 11% YoY)
was higher than estimates driven by higher than expected treasury gains.
But aggressive loan growth (up 37% YoY) and lower CASA ratio can lay
pressure on margins going forward. Moderation in asset quality pressures
was a positive surprise. While capital infusion by government has helped
to boost its capital adequacy ratio, it may need additional capital to
support asset growth. Corporation bank trades at discount to PSU banks
and healthy NIMs and asset quality are key for any re-rating. Maintain
BUY with target price of Rs660 based on 1x forward adjusted PB.

Corporation Bank- Aggressive growth hurts NIMs : ACCUMULATE :: Emkay

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Corporation Bank

Aggressive growth hurts NIMs

ACCUMULATE

CMP: Rs 583                                       Target Price: Rs 700

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n     CRPBK’s Q4FY11 NII/PAT at Rs7.6bn/Rs3.5bn below expectation led by more than expected contraction in NIM’s

n     The bank provided Rs1.3bn for pension liability including Rs743mn for retired employees in Q4FY11. Second pension option liability revised upwards to Rs6.3bn from 5.5bn earlier.

n     Slippage rate moderated during the quarter to 0.2% from 0.4% in the preceding quarter

n     Bank faces headwinds on NIMs due to its low CASA but valuations unreasonable at 1.1x/1.0x FY12E/FY13 ABV with 22% RoEs. Downgrade to ACCUMULATE with TP of Rs700

Corporation Bank - Risk-return positive; Buy ::BofA Merrill Lynch

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Corporation Bank
    
Risk-return positive; Buy
„4Q:Earnings miss on higher write-off’s, but quality ok
Corp. Bank reported earnings of Rs3.5bn, a +11% yoy growth (~11% below est.),
as the bank wrote-off aggressively in 4Q. However, operating earnings were 2%
ahead of estimates. While loan growth remained strong (+37% yoy) and margins
increased 18bps yoy to 2.5%, topline was 9% below est. and grew ~29% yoy
owing to change in accounting policy (recognizing income from liquid funds to
other income vs. topline earlier). CASA was down ~250bps yoy to 26%. Core fee
growth at +30% yoy. Total CAR at +14%; Tier 1 at ~8.7%.

Corporation Bank 4Q11 Results: Mixed Bag with Relatively Lower Headline Numbers:: Citi

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Corporation Bank (CRBK.BO)
 4Q11 Results: Mixed Bag with Relatively Lower Headline Numbers
 
 4Q11 profits up a modest 11%, weaker than estimates — Corp bank's 4Q11 profits
were up a modest 11%yoy (14% below our estimates). Net interest margins were down
10bps qoq and were a key drag on earnings along with additional pension-related
costs. There were positives as well – fee income grew 57%yoy and asset quality
showed meaningful improvement with absolute NPLs down 14%QoQ. Overall, it was a
mixed quarter with lower NIMs and higher costs offset by aggressive loan growth,
robust fee growth and healthy asset quality.

Corporation Bank (CRBK.BO, Rs552.5, OW, Price Target Rs725) :Morgan Stanley Research

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Investment Thesis
• Valuations are very attractive: Trades
at 5.5x F2012e earnings, 1.0x F2012e
BV and 3.9x F2012e PPOP.
• We expect Corporation Bank to
generate an average ROA of 1.1% in
F2012/13 and ROE of 19 & 21% in
F2012 & F2013 respectively.
• Expect reasonable volume growth and
falling credit costs to offset potential
margin pressures in F2012.
• Tier 1 position of the bank is
comfortable at 9.8% (as of December
2010, adjusted by adding profits of
F9M11 & recent capital infusion).
• Weak CASA franchise (CASA to total
funding at 24%) is a risk
Key Value Drivers
• Margin progression.
• Trend in loan growth.
• Fee income growth.
• Credit costs.
• Operating costs.
Potential Catalysts
• Slippages and upgrades/recoveries to
be reported in QE Mar 2011 and QE
June 2011 results.
• Trend in system-wide loan growth
(released on a fortnightly basis).
• Trend in short rates (given relatively
weak CASA)
Key Risks
• Sharp rise in short rates (given
relatively weaker CASA ratio)
• Higher than expected slippage from
restructured loans into NPLs.
• New impaired loan formation
accelerates further


Price Target Rs725 Derived from our probability weighted residual income model.
Bull
Case
Rs870
1.6x F2013e
BVPS
Stronger than expected economic growth. Loan growth in
F2012-13 averages 25% -- higher than base case estimates
implying that NII growth and fee income is higher than
expectations; New NPL formation rate slows to materially below
normalized levels implying that credit costs drop sharply.
Base
Case
Rs775
1.4x F2013e
BVPS
Margins likely to compress in F2012, but falling credit costs
will help preserve profitability. We expect margins to compress
by 35 bps by end-F2012 from current levels of 2.7%. Building in a
volume growth of 17% in F2012 & 18% in F2013. Expect credit
costs to decline to 64 bps in F2012 (vs. 75 bps in F2011) owing to
slowing new NPL formation.
Bear
Case
Rs425
0.8x F2013e
BVPS
Disruptive rise in interest rates: Inflation rates remains at higher
levels for longer and hence resulting in a disruptive rise in rates in
the system. This will result in loan growth being slower than
expectations and new NPL formation to potentially re-accelerate.
In this scenario, we build in a sharper compression in margins.

CORPORATION BANK: Kotak Sec: global investor conference 2011

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CORPORATION BANK: Key takeaways
􀁠 Concern on credit growth to emerge in FY2012 given the recent increase in interest rates.
RBI has raised concern on banks borrowing short term (overnight, 1 month and 3 months)
to fund balance sheet growth. Asset duration has increased in recent years given the
focus on infrastructure lending.
􀁠 Margins to remain under pressure in FY2012 though no near-term concern as pricing
power remains strong. Investment in RIDF to continue as meeting agriculture targets
continues to remain difficult.
􀁠 Strong focus on recoveries given the slippages witnessed in 2Q and 3Q. Select slippages
are due for recoveries in 4Q which could result in gross NPL declining from current levels.
Most of the infrastructure projects are under implementation and risks remain in few of
them though they are unlikely to slip in FY2012.
􀁠 The bank would need to make provision of Rs5.4 bn for pension liability. The bank has
not ascertained the liability specifically for retired employees which would need to be
provided by 4QFY11.

Corporation Bank: Strong margins but asset quality slips. :: Kotak Sec,

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Corporation Bank (CRPBK)
Banks/Financial Institutions
Strong margins but asset quality slips. An early lending rate hike during the quarter
cushioned the rise in deposit costs, but asset quality deteriorated on the back of select
one-offs slippages. Near-term concerns remain as the risk on margins could be higher,
due to its weaker liability franchisee. However, we still expect RoEs to remain near 20%
levels. Valuations are attractive at 1.1X FY2012 PBR, but we retain ADD, owing to its
weaker liability franchisee. We revise TP to `700, factoring higher cost of equity.

Buy Corporation Bank:TP of Rs700 -Slippages rise on one-off: Emkay

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Corporation Bank Slippages rise on one-off

BUY

CMP: Rs 564                                        Target Price: Rs 700

---

n     CRPBK’s Q3FY11 NII/PAT at Rs8.4bn/Rs3.8bn better than expected driven by 27% yoy growth in advances and 7bps qoq expansion in NIMs to 2.7%.

n     Some of the NII driven by one-off opportunities as other interest has almost doubled. Also avg advances growth for quarter at 31.5% vs quarter end growth of 26.8%

n     Slippages rate increased significantly to 1.6% (annualized) from 1.0% in preceding quarter, primarily led by Rs1.2bn slippage from crop loans. PCR as per RBI norms at 72.81%

n     Valuations not unreasonable at 1.0x FY12E ABV. We maintain our BUY recommendation on stock with TP of Rs700