Central Bank of India - 1QFY2013 Result Update - Angel Broking

Central bank reported dismal performance on the operating front during 1QFY2013, with pre-provisioning profits remaining flattish on a yoy basis. Despite poor operating performance, reported net profit grew by 19.6% yoy, largely aided by write-back of provision on investments of Rs.39cr compared to provision of Rs.108cr during 1QFY2012. Though NPA provisioning was higher by 31.3% yoy, PCR still remains one of lowest in the industry at 40.8%.

Advances growth healthy; Asset quality pressures continue: During 1QFY2013, advances for the bank grew at healthy pace of 22.4% yoy, while growth in deposits remained muted at 6.0% yoy, partly due to bank's conscious strategy to reduce high cost bulk deposits (bulk deposits and CDs as % to overall deposits at 31.3% in 1QFY2013 compared to 31.8% in 4QFY2012). Despite moderate growth of in saving deposits, growth in overall CASA deposit remained rather muted at 7.0% yoy, mainly on back of 14.6% yoy decline witnessed in current deposits, which was in-line with sectoral trends. CASA ratio witnessed an improvement of 31bp yoy to 32.9%. Reported NIM for the bank improved marginally by 5bp qoq. Strong growth of 29.1% yoy in fee income led to higher non-interest income (23.9% yoy). The bank continued to face asset quality pressures, with sequential increase witnessed in both gross and net NPA ratios. Annualized slippages ratio for the quarter, came in at 3.9% compared to 10.9% in 4QFY2012 (50% of which was attributed to complete CBS switchover). Slippages at Rs.1,448cr, though are lower compared to Rs.3,543cr in 4QFY2012, but still remain elevated considering the average of Rs.651cr over the past eight quarters till 3QFY2012. PCR improved slightly by 14bp qoq, but still remains one of the lowest in the industry at 40.8%. Additionally, the bank restructured loans worth Rs.2,674cr during the quarter, (out of which ~Rs.2,400cr pertained to discoms), taking its outstanding restructured book to Rs.20,686cr.

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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