Central Bank of India - 4QFY2012 Result Update - Angel Broking

Central Bank of India reported a dismal performance for 4QFY2012, directionally in-line with our expectation, with net loss of Rs.105cr for the quarter as against profit of Rs.133cr in 4QFY2011. The bank's disappointing performance was a result of muted performance on the operating front and considerably higher provisioning expenses on the back of continued deterioration in asset quality, evident from elevated slippages and ballooning restructuring. We recommend Neutral on the stock.

Business growth remains moderate; Asset quality deteriorates considerably: The bank's business growth was moderate during 4QFY2012, with advances growing by 13.7% yoy on the back of healthy growth witnessed in retail, MSME and direct agri segments. Deposits growth was also moderate at 9.4% yoy. A sharp decline in volatile current deposits by 17.8% yoy, despite better 10.4% yoy growth in saving deposits, resulted in an 189bp yoy fall in CASA ratio to 33.3% (up by 82bp qoq). Reported NIM for the bank remained flat on a qoq basis, on the back of a 32bp qoq fall in yield on advances to 11.1% and a 26bp rise in cost of deposits to 7.4%. Asset quality deteriorated considerably during 4QFY2012, with gross NPA ratio rising to 4.8% (3.7% in 3QFY2012) and net NPA ratio climbing to 3.1% (2.0% in 3QFY2012). Slippages for 4QFY2012 stood at steep Rs.3,543cr (annualized slippage ratio of 10.9%), more than five times the average quarterly run-rate of Rs.651cr over the past eight quarters. Management attributed 50% of the slippages to the last phase of switchover to system-driven NPA recognition, which was completed in 4QFY2012 after a late beginning post 1QFY2012. The bank also restructured loans amounting to over Rs.7,467cr during 4QFY2012, largely pertaining to SEBs and the aviation and telecom sectors and took its outstanding restructured book to Rs.17,347cr (an absolute increase of 75.6% qoq). Provision coverage ratio (including technical write-offs) declined by 743bp qoq and remains one of the lowest in industry at 40.6%.

Outlook and valuation: At the CMP, the stock is trading at 0.7x FY2014E ABV compared to its trading range of 0.6-1.7x with a median of 1.2x since its listing in 2007. However, we believe this is outweighed by the substantial concerns on its asset quality. While the stock has corrected substantially over the past year, it is still trading higher than some of the other mid-size PSU banks with a better asset-quality outlook and return ratios. Hence, we recommend a Neutral rating on the stock.

Source : Equity Bulls

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