Corporation Bank - 1QFY2013 Result Update - Angel Broking

Corporation Bank registered a subdued net profit growth of 5.4% yoy to Rs.370cr during 1QFY2013. The earnings performance was subdued despite a moderate growth of 16.2% in operating profits, due to a 29.5% yoy increase in provisioning expenses, considering a sharp deterioration in the asset quality.

NIMs decline; Slippages surge: The bank's advances grew at a healthy pace of 24.9% yoy, while the growth in deposits was moderate at 13.9% yoy. The advances growth was broad-based with segments such as retail, corporate and SMEs witnessing a relatively higher growth. CASA ratio for the bank stood at 20.7% on the back of relatively good 9.5% yoy growth in current deposits and a reasonable 13.3% yoy growth in the saving deposits. A sequential dip in the yield on advances by 9bp, coupled with a qoq increase of 7bp in cost of deposits led to a qoq decline in the reported NIM by 12bp to 2.3%. Non-interest income excluding treasury grew at a moderate pace of 11.6% yoy, aided by a higher income under the 'misc. other income' head, even as growth in core fee income remained modest at 10.9% yoy and recoveries declined by 46.8% yoy. The bank's asset quality deteriorated sequentially, with both gross and net NPA ratio increasing substantially by 45bp and 33bp respectively to 1.7% and 1.2%. Slippages during the quarter came in at Rs.722cr, out of which ~Rs.300cr were chunky, which the management expects to recover in the next few quarters. The major slippages were from segments such as large industry (Rs.352cr), agriculture (Rs.79cr) and SMEs (Rs.97cr). Consequently the annualized slippages ratio stood at 2.9% (~100bp lower excluding chunky slippages). The PCR for the bank dipped sharply by 428bp sequentially to 61.0%. Additionally, the bank's restructured book grew by ~Rs.1,000cr to Rs.8,351cr, which included restructuring of ~Rs.600cr worth of advance to the Uttar Pradesh discom.

Outlook and valuation: The bank's low CASA ratio (20.7% as of 1QFY2013) has contributed to higher margin pressures. At the current market price, the stock trades at 0.6x FY2014E ABV and has limited upside left from these levels relative to peer banks, in our view. We value the bank at 0.7x FY2014E ABV and recommend an Accumulate on the stock with a target price of Rs.454.

Source : Equity Bulls

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