Corporation Bank, has reported a strong growth in its bottomline despite a lackluster growth in its topline. While bottomline has risen by 29% topline has grown by a marginal 3.5% in 1QYF04 on a YoY basis. Bottomline growth has been buoyed mainly by strong improvement in net interest income as well as a significant fall in provisioning. operating margins have also shown an improvement in the June quarter.
Income from Operations
Net interest income
Operating Profit Margin (%)
Provisions and Contingencies
Profit before Tax
Profit after Tax/(Loss)
Net Profit Margin (%)
No. of Shares (m)
Diluted Earnings per share* (Rs)
P/E Ratio (x)
The bank has indicated a 26% YoY growth in its retail advances (overall advances growth of 10% in the same period). However, interest income on advances has still shown a 8% dip in the June quarter. This is seemingly due to pressure on both the yields as well as lending in the corporate segment. We believe that the bank is facing pressure as far as growing business in the corporate lending sphere is concerned. Yields also seem to be falling at a faster rate now thus further putting pressure on the topline. The bank seems to have increased its exposure to government securities as indicated by the strong rise in interest income from the same in 1QFY04. Pressure in the corporate business front may have forced the bank to deploy capital in G-Secs.
Corporation Bank has witnessed a significant improvement in the net interest income and this is mainly due to a falling interest expenses. Net Interest Margins (NIM) have also improved to 3.2% (3.0% in 1QFY03). However, NIM has fallen from the levels seen in FY03 (3.6%), thus indicating pressure on this front. While other expenses have shown a significant increase in the June quarter, operating margins have still shown an improvement. The bank has witnessed a significant growth in its employee expenses.
While other income has grown marginally, the growth in income from treasury operations has been strong at 49% in the June quarter. However this has been the only redeeming factor as the bank is facing pressure on its fee-based income which has seen a decline of 2% in 1QFY04. Corporation Bank has also significantly reduced its provisioning in 1QFY04. This has also to an extent helped in the strong growth of the bottomline. While provisioning has reduced, the bank continues to enjoy a portfolio of assets that have good quality. Net NPAs stood at 1.6% (1.7% in FY03) in the June quarter.
The stock is currently trading at Rs 180, at price to book ratio of 1.2x. The bank had significantly raised its provisioning for NPAs in FY03. Corporation Bank has one of the lowest level of NPAs among public sector banks. One must also keep in mind the fact that the bank is able to reduce its net NPA levels further, going forward provisioning requirements will be lower and this will further help improve bottomline. Corporation Bank has also been helped considerably by growth in other income as far as its bottomline growth is concerned. Other income growth seems to have been mainly on account of profit booking in the bank's G-Sec portfolio. However, since this is not sustainable in the long run we feel that profit growth from here on is likely to be relatively subdued.
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