Central Bank of India - 1QFY2014 Result Update - Angel Broking

Central Bank reported a weak set of numbers for the quarter. NII grew moderately by 11.6% yoy. Other income, propelled by treasury gains, grew at 85.5% yoy, thereby aiding healthy operating profit growth of 26.2% yoy. On the asset quality front, the slippages during the quarter spiked to 5.6%, highest since the bank made switchover to system based NPA recognition. Gross and Net NPA levels jumped up sequentially by 24.5% and 30.9%, respectively, on an already large base. Consequently, the provisioning expenses almost tripled yoy, thereby resulting in a net profit of Rs.22cr for the quarter as against Rs.336cr in 1QFY2013.

Moderate business growth; Asset quality pressures increase: During 1QFY2014, the bank's advances grew at a moderate pace of 13.2% yoy. Deposits grew at a healthy pace of 17.2% yoy, even as the bank reduced its share of bulk deposits and CDs as a proportion of overall deposits to 22.6% from 24.4% in last quarter. CASA ratio came down by 74bp yoy to 32.1%. Reported NIMs remained sequentially stable at 2.68%. Treasury income grew by 173.2% yoy to Rs.279cr. Non-interest income (excluding treasury) grew strongly at 44.7% yoy, aided by higher recoveries from written-off accounts, which almost doubled on a yoy basis and profit from exchange transactions at Rs.46cr compared to a loss of Rs.17cr in 1QFY2013. Asset quality deteriorated further showing no signs of respite, as the bank witnessed slippages of Rs.2,400cr during the quarter (which included a chunky account in Gems and Jewelry sector worth Rs.968cr). Even on the recoveries and upgrades front, the bank reported a sequentially lower performance at Rs.294cr as against Rs.1,165cr reported in 4QFY2013. PCR dropped by 529bp qoq, and now stands at 42.5%. The bank restructured loans worth Rs.3,000cr during the quarter, thereby taking its outstanding restructured book to Rs.25,794cr (which, at 14.8% of net advances, remains one of the highest in the industry).

Outlook and valuation: Over the last two years, the bank has faced tremendous asset quality pain, as its Gross NPA ratio has increased from 2.3% to 6.0% and share of total restructured advances to net advances has increased from 4.4% to 14.8%. Traditionally the bank has witnessed higher asset quality pressure from the infrastructure sector (including power), but now, given the weak economic environment, other stressed sectors/over-leveraged companies are also contributing to the asset quality pain. At the CMP, the stock is trading at 0.6x FY2015E ABV. Even though the bank is looking cheap at CMP, the asset quality concerns outweigh current valuations, in our view, especially considering the weakening macro environment. Hence, we maintain our Neutral rating on it.

Source : Equity Bulls

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