Corporation Bank – BUY (Target Price Rs492, Upside 12.3%)

Corporation Bank is a mid-sized PSU bank with a total asset base of ~Rs870bn (end FY09). The bank was established in 1906 and currently operates 1,094 branches and 1,057 ATM’s, ~75% of which are located in South & West India. Return ratios for the bank have remained attractive (RoE ~20% and RoA ~1.2%) on the back of steady rise in net profit and zero equity dilution. With loan growth running high at 26% yoy we expect the book to witness 20% CAGR over FY09-11E, translating into a 19% CAGR in net profit. Using our proprietary Bank 20 valuation model, we assign a multiple of 1.1x to Corporation Bank’s FY11 adjusted BV and arrive at 1-year price target of Rs492. Comfortable asset quality coupled with improvement in margins and CASA ratio is likely to command premium valuation. Maintain BUY.