Motilal Oswal Maintains Neutral on Corporation Bank

Corporation Bank (CRPBK IN; Mkt Cap USD1.8b, CMP Rs580, Neutral)

Loan growth moderated to 27% YoY and 3% QoQ to Rs719b. Deposits grew 16.7% YoY and 1.7% QoQ to Rs985b. CD ratio improved marginally to 73%.

Margins improved QoQ by 7bp leading to NII growth of 18% QoQ and ~41% YoY to Rs8.4b (est. of Rs7.5b).

Management has indicated liability related towards 2nd pension option to be Rs5.4b, which it plans to amortize over a period of five years.

Asset quality deteriorates sharply: In absolute terms, GNPA increased 23% QoQ to Rs9.1b. Gross NPAs ratio increased from 1.05% in 2QFY11 to 1.26%.

In a rising interest scenario CRPBK's NIMs are vulnerable due to its dependence on bulk deposits. Pressure on asset quality has also increased in 3QFY11, which needs to be watched going forward. We expect the bank to report ~17% EPS CAGR over FY10-13. We expect RoEs to remain at 21%+ and RoA at 1.1%+ over FY10-13E. Stock trades at 5.1x FY12 EPS, 1x FY12 BV. Maintain Neutral.

Source : Equity Bulls

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