X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Corp Bank: Lower costs sweeten performance - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

StockSelect
  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Corp Bank: Lower costs sweeten performance
Jan 25, 2010

Performance summary
  • Interest income grows by 23% YoY in 9mFY10 on the back of 26% YoY growth in advances.
  • Net interest margins drop from 2.7% in 9mFY09 to 2.5% in 9mFY10.
  • Provisions double during the nine month period on account of MTM on investments.
  • Net profit margin improves by 1.5% to 16% in 9mFY10 thanks to lower operating costs.
  • Capital adequacy ratio at 17.2% in 9mFY10.
  • Net NPA to advances remain stable at 0.5% in 9mFY10.



Rs (m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
Interest income 16,234 18,606 14.6% 43,609 53,724 23.2%
Interest Expense 11,455 12,612 10.1% 30,983 38,019 22.7%
Net Interest Income 4,779 5,994 25.4% 12,626 15,705 24.4%
Net interest margin (%)       2.7% 2.5%  
Other Income 2,820 2,516 -10.8% 6,139 9,138 48.9%
Other Expense 3,106 2,995 -3.6% 7,547 8,257 9.4%
Provisions and contingencies 207 1,271 514.0% 1,809 3,761 107.9%
Profit before tax 4,286 4,244 -1.0% 9,409 12,825 36.3%
Tax 1,722 1,195 -30.6% 3,087 4,245 37.5%
Profit after tax / (loss) 2,564 3,049 18.9% 6,322 8,580 35.7%
Net profit margin (%) 15.8% 16.4%   14.5% 16.0%  
No. of shares (m)       143.5 143.5  
Book value per share (Rs)*         379.9  
Price to book value (x)         1.1  

What has driven performance in 9mFY10?
  • Notwithstanding the lower credit demand in the past nine months, Corporation Bank managed to grow its advance book by nearly 26% YoY, largely relying on the incremental offtakes to SMEs and the large corporates. However, the downward re-pricing of loans marginally impacted the bank’s margins. Corporation Bank’s NIM slipped to 2.5% in 9mFY10 with CASA funding being 23% of total deposits. The faster growth in term deposits have also pressurised the NIMs. We have estimated the NIMs at 2.3% by the end of FY10.
    Leaning towards lower-risk assets…
    (Rs m) 9mFY09 9mFY10 Change
    Advances 449,369 567,100 26.2%
    Retail 90,460 108,700 20.2%
    % of total advances 20% 19%  
    SME 44,937 68,052 51.4%
    % of total advances 10% 12%  
    Large corporate 313,972 390,348 24.3%
    % of total advances 70% 69%  
           
    Deposits 618,944 844,110 36.4%
    CASA 156,084 196,452 25.9%
    % of total 25% 23%  
    Term deposits 462,860 647,658 39.9%
    % of total 75% 77%  
    Credit deposit ratio 72.6% 67.2%  

  • During 9mFY10, Corporation Bank witnessed growth of 49% in its non-interest income while the growth in fee income was restricted to 40% YoY. Nevertheless, fee income contributed 18% to the bank’s total other income. Although Corporation Bank has made very marginal headway on the fee income front, the fact that its investments are well hedged against interest rates risks (79% of investments are in held-to-maturity basket) makes it a safer play.

  • Corporation Bank’s cost to income ratio has fallen from 40% in 1HFY09 to 32% in 9mFY10, making it one of the lowest in the sector. The same is nearly 6% lower than its peers in the PSU banking space and is one of the best (lowest) in the sector. This is also despite the fact that the bank had increased its employee base and added 73 branches to its franchise in the past 9 months. Going forward, over the next 2 years, the bank is planning to add 150 braches a year that may entail higher costs.

  • Corporation Bank’s gross NPA stood at 1.3% compared to 1.2% in 9mFY09 while its net NPA remained stood at 0.5% at the end of December 2009. The bank’s provision coverage ratio of 73% is also above the RBI’s mandated limit of 70%.

What to expect?
At the current price of Rs 438, the stock is attractively valued at 0.9 times our estimated FY12 adjusted book value. The bank’s annualised return on equity stands at a healthy 19.9%. Further, with CAR of 17.2% at the end of December 2009, the bank will not require further equity dilution. Corporation Bank has set a target of asset growth of 20% in FY10 on the back of CASA comprising 30% of its total deposits (i.e., through low cost funding). We believe that at the current juncture the long term prospects of the bank seem promising.

To Read the Full Story, Subscribe or Sign In


Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

CORPORATION BANK SHARE PRICE


Sep 24, 2018 03:37 PM

TRACK CORPORATION BANK

  • Track your investment in CORPORATION BANK with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks

MORE ON CORPORATION BANK

CORPORATION BANK - WELLS FARGO COMPARISON

COMPARE CORPORATION BANK WITH

MARKET STATS