Dear All,
Forwarding you the Result Update on Corporation Bank for 4QFY2011 with an Accumulate recommendation and a Target Price of Rs.672 (12 months)
For 4QFY2011, Corporation Bank registered moderate net profit growth of 10.6% yoy (decline of 9.7% qoq) to `345cr, in line with our estimates. However, other income growth was stronger than estimated, which was offset by higher provisioning expenses. We recommend Accumulate on the stock.
Strong business growth with improving asset quality: The bank showed strong momentum in business growth during the quarter, with advances and deposits growing by 20.7% qoq and 18.5% qoq, respectively. Even on a yoy basis, growth was well above industry growth. Reported NIM declined by 23bp sequentially to 2.48%, resulting in a 9.6% qoq decline in net interest income. However, part of the sequential NII decline can be attributed to the change in classification of income from mutual funds, to profit on sale of investments from interest income on investments. Other income growth was healthy on the back of a surge in recoveries from written-off accounts. However, fee income growth lagged strong advances growth. During the quarter, asset quality improved on the back of reduction in annualised slippage ratio to 1.1% from 1.8% in 3QFY2011 and higher recoveries and upgradations compared to 3QFY2011. Provision coverage including technical write-offs improved to 74.7% from 72.8% in 3QFY2011.
Outlook and valuation: The bank’s relatively small, regional and urban-centric operations temper the outlook on the key competitive parameters of CASA and fee income. The low CASA ratio (26%) is also expected to contribute to higher margin pressures, given rising interest rates. However, currently the stock is trading at 0.9x FY2013E ABV, which we believe provides a margin of safety from the expected margin pressures. Also, the key positive for the bank is its proactive investment in modern distribution and payment systems, which has led to consistently faster CASA growth than peers. We recommend Accumulate on the stock with a target price of `672 (at 1.05x FY2013E ABV).
Kindly click on the following link to view the Report.
If you have any further queries, feel free to call us on 022 39357600 Ext: 6864 ,6865 or mail us at advisory@angelbroking.com
With best regards,
Fundamental Advisory Desk
Angel Broking
Akruti Star,5th Floor, Road No.7,MIDC, Andheri (E),Mumbai – 93.
Call : (91) (022) 39357600, Ext: 6864, 6865
Website : www.angelbroking.com
Disclaimer: Ours is an advisory role. The final decision and consequences based on our information is solely yours. Moreover, in keeping with regulatory guidelines, we do not guarantee any returns on investments. Prospective investors and others are cautioned that any forward-looking statements are not predictions and may be subject to change without notice.
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