CMP Rs567, Target price Rs648, Upside 14.3%
Corporation Bank (CRPBK) Q1FY11 net profit was up 27.8% yoy and 6.9% qoq. Loan growth came in higher at 36.8%; deposit book was up 26.2% yoy. On a sequential basis, loan book grew 2.5% (largely in line with system). Deposits however declined 1.8% qoq. LDR improved to six-quarter high of 71.2%.
CASA deposits grew 30.2%yoy, led by ~33% increase in savings deposits. CASA ratio however remains low at 24.1%. With predominant presence in South and West India, the bank has been constantly pursuing towards increasing its presence in North and East India. In recent past, it has set-up new branches in states of Gujarat, Maharashtra, Harayan and Punjab.
While CASA ratio continues to remain in low 20’s, the bank reported significant improvement in margins. NIM improved by 36bps yoy and 12bps qoq to 2.62%. Healthy loan mix with improved impetus towards lending to MSME segment has contributed for improved margins.
Improving efficiency and higher productivity had resulted in lower operating cost during the quarter. C/Income for the bank at 35.6% is the lowest amongst its peers. Non-interest income came in lower (down 2.4% qoq and 26% yoy) on back of lower trading gains.
GNPL (1.1%) and NNPL (0.43%) for the bank were up 11.7% and 39.8% qoq. We expect minimal concerns over the asset quality. PCR remain healthy at 76% levels.
We have not upgraded our FY11 and FY12 earnings estimate. We expect the bank to witness healthy 25% CAGR in loan book over FY10-12E. This would translate into 21% CAGR in balance sheet and 22% CAGR in net profit over FY10-12E. The concern now remains over lower CASA ratio. We value bank at 1.15x FY12PB and arrive at target price of Rs648. Maintain BUY