Corporation Bank (Q1 FY14)

India Infoline News Service | Mumbai |

Corporation Bank’s loan book shrunk by 2.8% sequentially, close to our expectation of 2% de-growth.

CMP Rs298, Target Rs321, Upside 7.7%
  • Corporation Bank’s loan book shrunk by 2.8% sequentially, close to our expectation of 2% de-growth. The yoy credit growth momentum was healthy at 20.1%. Bank has significantly run down its Wholesale Trade and Capital market loan book reporting an annual de-growth of 28% and 35% respectively. Corporate lending (-0.7% qoq/+14.9% yoy) remained muted tracking weak investment cycle. Agriculture, Retail and SME reported robust growth of 30%+ yoy in each of these segments. As on Jun’2013, bank’s Priority Sector portfolio stands at 33.3% of adjusted net bank credit, up from 29.9% as on Jun’2012. Bank expects this ratio to inch up further backed by new branch additions in unbanked areas focusing on direct agricultural lending. Management has guided 20% credit growth in FY14 largely to be driven by SME, Retail and Agriculture.


  • Deposits de-grew by 1.8% qoq almost in-line with our expectations of 1.5% decline. Notwithstanding a 1.4% growth in Term Deposits, de-growth was led by a 13.5% sequential decline in CASA deposits. Resultantly, CASA ratio declined to an all time low of 19.1% in Q1 FY14, down by 260bps qoq. However, bank is focusing to overcome these challenges by increasing footprints in CASA accretive locations.


  • NIM declined by 5bps sequentially to 2.26% in Q1 FY14, in contrast to our expectation of 5bps increase. This can be attributed to increase in Cost of Funds (6bps qoq) more than offsetting the rise in Yield on Advances (4bps qoq) and decline in C/D ratio by 1ppt sequentially. Going forward, we expect NIM to remain under pressure. This would be on account of significant dependence on Bulk Deposits, the rates where have increased across maturities.


  • Asset quality deteriorated significantly with GNPA ratio rising from 1.72% in Q4 FY13 to 2.37% in Q1 FY14. Delinquency ratio stood at multi-quarter high of 3% in Q1 FY14. Of the total slippages of Rs8.7bn in Q1 FY14, ~50% is attributed to Large Corporate segment; Retail and SME contributed ~Rs1.7bn each spread across many small ticket accounts. Lower-than-adequate credit cost resulted in sharp decline in Provision Coverage Ratio from 62.1% in Q4 FY13 to 56.8% in Q1 FY14. Resultantly, Net NPA rose by 46bps sequentially to 1.65%. Outstanding restructured book stood at 6.8% of total advances. During the quarter, bank restructured advances worth Rs4.96bn. Total slippages from restructured book stood at Rs2.84bn in Q1 FY14. We expect the pressure on asset quality to persist given the tough operating environment.


  • Non-interest income spiked up significantly (77.4% yoy) driven by substantial trading gains (Rs2,846mn in Q1 FY14 as against Rs426mn in Q1 FY13). As a result, Cost/Income ratio improved by 280bps qoq to 35.6%. We expect C/I ratio to remain elevated in the ensuing quarters driven by weak Net Interest Income growth, absence of one offs from trading gains in the subsequent quarters and higher opex growth arising out of new branch additions (91 branches to be opened in unbanked areas).


  • Corporation Bank’s Tier I ratio stands lower at 8.15%, less than required to comply with Basel III norms and support planned balance sheet growth. Bank has placed a request with GoI to infuse Rs8bn and plans to make a QIP issue for Rs10bn in FY14 to meet Basel III norms and comply with all internal capital adequacy requirements. 


  • We believe upside in the stock from the current level is limited despite 30% correction in past 2 months primarily on account of a) continuing pressure on asset quality, b) weak margins c) lower provisioning coverage and d) inadequate capitalization. We maintain Market Performer rating on the stock with a target price of Rs321. 

Result table
(Rs mn)
Q1 FY14
Q4 FY13
% qoq
Q1 FY13
% yoy
Total Interest Income
42,715
40,681
5.0
36,506
17.0
Interest expended
(33,068)
(31,373)
5.4
(28,422)
16.3
Net Interest Income
9,647
9,308
3.6
8,084
19.3
Other income
5,812
5,674
2.4
3,276
77.4
Total Income
15,459
14,982
3.2
11,360
36.1
Operating expenses
(5,509)
(5,757)
(4.3)
(4,662)
18.2
Provisions
(4,470)
(4,599)
(2.8)
(2,166)
106.4
PBT
5,480
4,625
18.5
4,533
20.9
Tax
(1,700)
(1,070)
58.9
(830)
104.8
Reported PAT
3,780
3,555
6.3
3,703
2.1
EPS
98.9
93.0
6.3
100.0
(1.1)
 
Key  Ratios
Q1 FY14
Q4 FY13
chg qoq
Q1 FY13
chg yoy
NIM (%)
2.3
2.3
(0.1)
2.3
(0.0)
Yield on advances (%)
11.4
11.5
(0.1)
BSE 39.30 [0.60] ([1.50]%)
NSE 39.10 [1.10] ([2.74]%)

***Note: This is a NSE Chart

 

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