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Corp. Bank: Betting on other income - Views on News from Equitymaster
 
 
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  • Oct 17, 2001

    Corp. Bank: Betting on other income

    Corporation Bank started the year with a disappointing growth in topline for the first quarter (5% YoY). Its profits however witnessed a steep rise of 25%. This was on the back of a 33% jump in other income and a 200 basis points increase in operating margins.

    The bank is expected to declare its second quarter results in the next week. We have projected about 20% growth in profits on a 7% rise in interest income. Corporation Bank’s focus on increasing the fee-based income is expected to push up its profits figure in the September quarter. Other income accounted for 15% of its total revenues in 1QFY02, up from 14% in FY01.

    Financial snapshot
    (Rs m) 2QFY01 2QFY02E Change
    Interest Income 4,335 4,638 7.0%
    Other Income 687 859 25.0%
    Total Income 5,022 5,497 9.5%
    Interest Expenses 2,804 3,015 7.5%
    Operating Profit 2,218 2,482 11.9%
    Other Expenses 869 918 5.7%
    Depreciation 48 46 -3.6%
    Profits Before Tax 1,301 1,517 16.7%
    Tax 343 364 6.3%
    Provisions & Contingencies 248 310 25.0%
    Profits After Tax 958 1,153 20.4%
    Equity shares (m) 120 120  

    Performance ratios
    Particulars 2QFY01 2QFY02E
    OPM 35.3% 35.0%
    Cost to income ratio 39.2% 37.0%
    NPM 16.4% 18.2%
    EPS (Rs) 23.7 28.1

    The bank has a strong foothold in forex, cash management services (CMS) and debt markets. CMS contributed 3.3% of the bank’s total income in FY01 with a turnover of Rs 749 bn. The segment will get further strengthened after the strategic alliance with LIC. Currently LIC has a turnover of over Rs 760 bn, which can be tapped by the bank. Apart from this favourable condition in the debt markets is also expected to fuel the bank’s total income.

    Corpbank Securities, the wholly owned subsidiary of Corporation Bank in the debt market (primary dealer) is expected to report stellar performance in the current year. In the second year of its operations, the company reported profits of Rs 147 m in FY01 (Rs 5 m in FY00) on total income of Rs 685 m. Given its large asset base of Rs 7 bn and market proficiency, the company is expected to maintain its growth rates in the current year.

    At the current market price of Rs 120, Corporation Bank is trading at a P/E of 5x and Price/Book value ratio of 1x FY02 projected earnings. The bank is expected to report about 20% growth in earnings in the current year with over 150 basis points rise in operating margins and a sharp rise in other income.

     

     

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