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Corp. Bank: Beats expectations

Oct 23, 2001

Corporation Bank has beaten our expectations and posted a 31% jump in net profits. After encouraging earnings report from HDFC Bank, Corp. Bank became the second bank to post higher than forecasted results.

(Rs m) 2QFY01 2QFY02 Change 1HFY01 1HFY02 Change
Operating Income 4,335 4,875 12.5% 8,810 9,582 8.8%
Other Income 687 1,007 46.6% 1,309 1,839 40.5%
Interest Expenses 2,804 3,216 14.7% 5,971 6,445 7.9%
Operating Profit (EBDIT) 1,531 1,659 8.4% 2,838 3,137 10.5%
Operating Profit Margin (%) 35.3% 34.0%   32.2% 32.7%  
Other expenses 917 946 3.2% 1,668 1,832 9.9%
Profit before Tax 1,301 1,720 32.2% 2,479 3,144 26.8%
Other provisions 248 340 37.2% 500 644 28.6%
Tax 343 448 30.7% 644 788 22.4%
Profit after Tax/(Loss) 710 932 31.3% 1,335 1,713 28.3%
Net profit margin (%) 16.4% 19.1%   15.2% 17.9%  
Diluted number of shares 120.0 120.0   120.0 120.0  
Diluted Earnings per share* 23.7 31.1   22.3 28.5  
P/E (at current price)   4.0     4.3  
*(annualised)            

The bank's interest income in the current quarter reported a double digit growth, after a dismal 5% rise in 1QFY02 topline. A 47% rise in other income further fueled the bottomline. Corp. Bank's operating margins however declined by 130 basis points. In the scenario of falling interest rates and declining lending opportunities, the bank's operating margins are likely to remain under pressure.

Corp. Bank has been successful in reducing its cost to income ratio to 36% in the current quarter from 41% in 2QFY01. Consequently, the bank's other expenses moved up by a marginal 3%. Its effective tax rate also remained at the same level (26%). However, the figure for provisions on non-performing assets jumped by 37%. This indicates the bank's asset quality has been already affected by a downturn in the industrial activity.

At the current market price of Rs 124 Corporation Bank is trading at a P/E multiple of 5 times FY02 projected earnings on Price/Book value ratio of 1x. We have projected a 20% rise in the bank's net profits in the current year. However, in light of the bank's better than expected performance in the first half of the current year, we need to revisit the numbers.

Corporation Bank is holding its analyst meet today. We will post a detailed update on the bank tomorrow, when the information on the bank's latest initiatives is available.


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