Corporation Bank - 2QFY2013 Result Update - Angel Broking

Corporation Bank registered a subdued performance on the operating level, with both operating income and operating profit declining by 1.1% and 2.1% yoy, respectively. On the earnings front, despite witnessing a PBT level decline of 15.8% yoy on higher provisioning expenses considering deteriorated asset quality, lower effective tax rate aided the bank to a report net profit growth of 1.1%.

Business growth healthy; NIMs decline sequentially: During 2QFY2013, the bank's business growth was healthy, with both advances and deposits registering a growth of 20.2% and 19.2% yoy, respectively. Growth in advances was broad-based, across segments such as retail, corporate and agri. The CASA ratio for the bank stood at 20.9% on the back of relatively good 11.7% yoy growth in current deposits and a reasonable 15.8% yoy growth in the saving deposits. A sequential improvement of 25bps in the yield on advances was fully offset by a 20bp qoq increase in cost of deposits, leading to a 6bp qoq decline in the reported NIM to 2.2%. Despite a healthy growth of 20.4% yoy in fee income, the overall non-interest income excluding treasury grew at a subdued pace of 1.6% yoy, largely due to lower recoveries and decline in income from the Misc. other income. The bank's asset quality pressures continued during 2QFY2013, with both gross and net NPA levels increasing on an absolute basis by 15.4% and 14.0%, qoq respectively. Slippages came in at Rs.445cr, out of which ~Rs.298cr were from 20 accounts having outstanding due of more than Rs.5cr. Sector-wise, chunky slippages came from shipping, education institution and ceramic sector. Annualized slippages ratio came in at 1.8% compared to 2.9% in 1QFY2013 and 2.4% in 2QFY2012. PCR dipped by 58bp sequentially to 60.4%. Additionally, the bank restructured advances worth ~Rs.252cr, thereby taking its outstanding restructured book to Rs.8,866cr. As per RBI's recent 75bps increase in provisioning for standard restructured advances, the additional provisioning for the bank could be ~Rs.65cr. The management has guided for further restructuring of Rs.250cr in the coming quarter.

Outlook and valuation: The bank's low CASA ratio (20.9% as of 2QFY2013) has contributed to higher margin pressures. At the current market price, the stock trades at 0.6x FY2014E ABV and has moderate 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.445.

Source : Equity Bulls

Keywords