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Corp. Bank: Strength in performance

Jul 22, 2002

Corporation Bank has reported a strong 26% growth in first quarter earnings on the back of double digit rise in interest income. The bank's profit growth was fueled by over 40% rise in fee based income and lower provisions for tax.

(Rs m)1QFY021QFY03Change
Income from operations 4,707 5,192 10.3%
Other Income 832 1,194 43.6%
Interest expense 3,229 3,554 10.1%
Net interest income 1,479 1,638 10.8%
Other expenses 887 982 10.8%
Operating Profit 592 656 10.8%
Operating Profit Margin (%)12.6%12.6% 
Provisions and contingencies 303 51670.2%
Profit before Tax 1,120 1,33419.1%
Tax 340 3523.5%
Profit after Tax/(Loss) 780 982 25.8%
Net profit margin (%)16.6%18.9% 
No. of Shares (m) 120.0 143.4  
Diluted Earnings per share*21.827.4 
P/E Ratio 4.1 
*(annualised)   

Backed by revival in credit growth, the bank's interest income from advances witnessed a 15% growth as against 7% rise in 4QFY02. Income from investments, on the other hand, grew by just 8% as yield on government securities declined sharply in the last one year. Consequently, the bank's incremental investments are at lower rates.

Interest income breakup
(Rs m)1QFY021QFY03Change
Interest on advances 2,381 2,730 14.6%
Income from investments 1,990 2,151 8.1%
Interest on balance with RBI 239 176 -26.4%
Others 98 135 37.8%
Total 4,707 5,192 10.3%

During the quarter, the bank improved its cost to income ratio to 35% from 38% in 1QFY02. This cost reduction helped it in maintaining its operating margins at 12.6%. Corp. Bank's operating margins are much better than its peers in the industry. Meanwhile, the bank has indicated to launch VRS. The number of employees are yet to be decided. Despite stiff pressure on its cash management services business, the bank managed to record 44% growth in other income. This could be led by gains from sale on investments. Other income's contribution to total income rose to 19% from 15% in 1QFY02.

At the current market price of Rs 113, Corp. Bank is trading at a P/E of 4x and adjusted price to book value ratio of 1x. The bank's lower valuations are due to concerns over its long maturity investment portfolio and lack of revenue clarity from its tie-up with insurance companies (LIC and New India Assurance Company).

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