Corporation Bank - Q4FY12 Result Update - Emkay

- Corporation Bank's (CRPBK) results inline with expectation with NII at Rs8.3bn. However net profit was ahead of our expectation (below mkt exp) led by lower than expected opex.

- Lower CASA at 22% and reliance on bulk deposits kept pressure on cost of funds which rose by 30bps qoq. Resultantly NIM's contracted by 25bps to 2.4%.

- Asset quality remained stable with GNPA/ NNPA at 1.3%/0.9% resp. While slippages were just Rs1.6bn, restructuring was higher at Rs29bn (AI-Rs13.7bn; SEB-Rs13bn).

- Valuations attractive at 0.7x/0.6x FY13/14E ABV. Retain ACCUMULATE rating with TP of Rs460. Possibility of capital infusion and div yield of 6.1% cut downside.

Valuations and view

Lower CASA proportion and margins has for long have been an area of concern for the bank. CRPBK's cost of funds by far remains highest amongst the PSU banks with CASA at just 22%. While management has guided a transition towards more granular balance sheet, the actions and benefits are still little far away.

On positive side, CRPBK has consistently shown lower slippage rate (1.2%), lean cost structure (1% of assets) and 1% RoA. We have still built in significantly higher credit costs of 80bps for FY13-14E. Even after building in steep credit costs, we expect CRPBK to post 1%/19% RoA/RoE over FY12-14E.

The valuations remain attractive at 0.7x FY13 and 0.6x FY14 ABV. Unlike many peer banks CRPBK is yet to receive capital infusion from the central government which will further increase the ABV and pull the valuations lower. Add to that, dividend yield of 6.1% cuts downside further. We have cut our P/ABV multiple to 0.8x (vs 0.9x) taking into account failure of CRPBK to show meaningful improvement in the margins structure. Retain ACCUMULATE rating with TP of Rs460.

Source : Equity Bulls

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