Dear All,
Forwarding you the Result Flash on Corporation Bank for 4QFY2011 with a Buy recommendation.
Corporation Bank announced its 4QFY2011 results today, registering a moderate net profit growth of 10.6% yoy (decline of 9.7% qoq) to Rs345cr, in line with our estimates. However other income growth was stronger than estimated which was offset by higher provisioning expenses.
Key highlights:
· Business growth momentum was strong with advances and deposits growth of 20.7% qoq and 18.5% qoq, respectively. On a yoy basis, advances and deposits grew by 37.4% and 25.9%, respectively.
· NII grew by 19.1% yoy to Rs762cr. However on a sequential basis, NII de-grew by 9.6% due to a sequential decline in reported NIMs of 21bp to 2.5%. Non-interest income growth was strong, registering a growth of 85.4% qoq.
· Operating expenses increased by 37.6% yoy driven by a 47.8% yoy jump in employee expenses. During FY2011, the bank made provision of Rs111cr towards liability arising out of second pension option for serving employees. The bank took a hit of ~Rs74cr for retired employee pension expenses during 4QFY2011. As a result the cost-to-income ratio of the bank increased to 40.4% from 33.4% in 3QFY2011. The total outstanding pension for the bank at the end of 4QFY2011 stands at Rs442cr.
· The asset quality of the bank improved during 4QFY2011 with the absolute Gross NPAs declining by 13.5% qoq and Net NPAs declining by 3.8% qoq. Gross NPA ratio declined sequentially by 35bps to 0.91%, while net NPA ratio declined sequentially by 12bps to 0.46%. The provision coverage ratio stood at 74.7% (72.8% in 3QFY2011) including technical write-offs. Provisioning expenses were substantially higher, rising by 63.2% yoy to Rs269cr.
At the CMP, the stock is trading at 1.0x FY2013E ABV. We maintain our Buy recommendation on the stock. We may revise our estimates post interaction with the management.
| Exhibit 1: 4QFY2011 Actual vs. Estimates | |||
| (Rs cr) | Actual | Estimates | Var (%) |
| Net interest income | 762 | 823 | (7.4) |
| Non-interest income | 490 | 287 | 70.9 |
| Operating income | 1,252 | 1,110 | 12.9 |
| Operating expenses | 506 | 374 | 35.2 |
| Pre-prov. profit | 747 | 735 | 1.5 |
| Provisions & contingencies | 269 | 184 | 46.7 |
| PBT | 477 | 552 | (13.5) |
| Prov. for taxes | 132 | 214 | (38.4) |
| PAT | 345 | 338 | 2.2 |
Source: Company, Angel Research
Exhibit 2: 4QFY2011 Performance summary
| (Rs cr) | 4QFY2011 | 3QFY2011 | % chg (qoq) | 4QFY2010 | % chg (yoy) |
| Interest earned | 2,555 | 2,471 | 3.4 | 1,922 | 32.9 |
| Interest expenses | 1,794 | 1,629 | 10.1 | 1,282 | 39.9 |
| Net interest income | 762 | 842 | (9.6) | 640 | 19.1 |
| Non-interest income | 490 | 264 | 85.4 | 273 | 79.9 |
| Operating income | 1,252 | 1,107 | 13.1 | 912 | 37.2 |
| Operating expenses | 506 | 370 | 36.7 | 367 | 37.6 |
| Pre-prov. profit | 747 | 737 | 1.3 | 545 | 37.0 |
| Provisions & contingencies | 269 | 250 | 7.8 | 165 | 63.2 |
| PBT | 477 | 487 | (2.0) | 380 | 25.6 |
| Prov. for taxes | 132 | 105 |
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