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Corp Bank: Lower fees temper profit growth
Jan 29, 2011

Corporation Bank declared its 3QFY11 results. The bank has reported a 41% YoY and 25% YoY growth in net interest income and net profits respectively. Here is our analysis of the results.

Performance summary
  • Net interest income grows by 44% YoY in 9mFY11 on the back of 27% YoY growth in advances.
  • Other income falls by 17% YoY during 9mFY11 due to lower treasury gains.
  • Net interest margin improves by 0.2% to 2.6% in 9mFY11 thanks to upward re-pricing of loans.
  • Capital adequacy ratio at 14.2% at the end of 9mFY11.
  • Net NPA to advances move marginally higher to 0.6% in 9mFY11 (0.5% in 9mFY10).


Rs (m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
Interest income 18,606 24,713 32.8% 53,724 66,571 23.9%
Interest Expense 12,612 16,289 29.2% 38,019 44,019 15.8%
Net Interest Income 5,994 8,424 40.5% 15,705 22,552 43.6%
Net interest margin (%)       2.4% 2.6%  
Other Income 2,517 2,645 5.1% 9,138 7,567 -17.2%
Other Expense 3,132 3,699 18.1% 8,925 10,811 21.1%
Provisions and contingencies 1,134 2,500 120.5% 3,093 4,743 53.3%
Profit before tax 4,245 4,870 14.7% 12,825 14,565 13.6%
Tax 1,195 1,045 -12.6% 4,245 3,886 -8.5%
Profit after tax / (loss) 3,050 3,825 25.4% 8,580 10,679 24.5%
Net profit margin (%) 16.4% 15.5%   16.0% 16.0%  
No. of shares (m)         143.4  
Book value per share (Rs)*         477.2  
Price to book value (x)         1.2  
* Book value as on 31st December 2010

What has driven performance in 9mFY11?
  • Corporation Bank managed to grow its advance book by nearly 27% YoY in the first nine months of FY11 at 1.5 times the sector average growth rate. This was largely relying on the incremental offtakes to the large corporates. Also, the upward re-pricing of loans with base rate implementation helped matters. Corporation Bankís NIM moved up to 2.6% in 9mFY11 with CASA funding being 24% of total deposits. The bankís exposure to commercial real estate grew by 4% YoY in 9mFY11 and stood at 3.9% of total advances. The bank is targeting CASA at 35% over the next 3 to 4 years. This effort is expected to boost the bankís margins substantially.

    Leaning towards lower-risk assets...
    (Rs m) 9mFY10 9mFY11 Change
    Advances 567,079 719,340 26.9%
    Retail 108,726 139,930 28.7%
    % of total advances 19% 19%  
    SME 60,138 82,930 37.9%
    % of total advances 11% 12%  
    Large corporate 182,960 287,620 57.2%
    % of total advances 32% 40%  
    Deposits 844,123 985,260 16.7%
    CASA 196,450 239,740 22.0%
    % of total 23% 24%  
    Term deposits 647,673 745,520 15.1%
    % of total 77% 76%  
    Credit deposit ratio 67.2% 73.0%  

  • During 9mFY11, Corporation Bank witnessed lower share of non-interest income while the growth in fee income was restricted to 11% YoY. The fact that Corporation Bank has made very marginal headway on the fee income front continues to make it vulnerable to losses on the treasury side.

  • Corporation Bankís cost to income ratio remained stable a 36% in 9mFY11 as in 9mFY10. However, the same is nearly 5% lower than its peers in the PSU banking space and is one of the best (lowest) in the sector.

  • Corporation Bankís gross NPA has remained stable at 1.3%, however, at the net level NPAs came in marginally higher at 0.6% as against 0.5% in 9mFY10. The bankís provision coverage ratio of 73% is also above the RBIís mandated limit of 70%.

What to expect?
At the current price of Rs 563, the stock is attractively valued at 0.8 times our estimated FY13 adjusted book value (Research Pro subscribers can view latest updates here). The bank's annualised return on equity stands at a healthy 21%. However, Corporation Bank may require further equity dilution in the medium term to sustain growth at current rates. We see sustenance of margins and asset quality to be an issue in the coming quarters. Having said that, the current valuations, do leave substantial upsides for investors from 2 to 3 year perspective.

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