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  • MAY 14, 2003

Corporation Bank FY03 net up 35%

Corporation Bank, one of the most efficient public sector banks in the country, has announced robust FY03 results. The bank has reported an 8% increase in its interest income, while its net profit has jumped by 35% in FY03. Performance in the March quarter has however been disappointing. For 4QFY03, net profits have grown by 4% while interest income has grown by 9%. Low net profit growth for the bank in the March quarter was mainly on account of higher operating expenses during the same period.

(Rs m)4QFY024QFY03Change FY02 FY03Change
Income from Operations 4,874 5,308 8.9% 19,457 21,025 8.1%
Other Income 961 1,262 31.3% 3,819 5,318 39.2%
Interest Expenses 3,390 3,415 0.7% 13,205 13,104 -0.8%
Net interest income 1,483 1,893 27.6% 6,252 7,921 26.7%
Other Expenses 1,037 1,447 39.5% 3,842 4,714 22.7%
Operating Profit 446 446 0.0% 2,410 3,208 33.1%
Operating Profit Margin (%)9.2%8.4% 12.4%15.3% 
Provisions and Contingencies 591 83841.8% 1,622 2,25939.3%
Profit before Tax 816 870 6.5% 4,608 6,266 36.0%
Tax 363 3979.4% 1,527 2,10638.0%
Profit after Tax/(Loss) 454 473 4.2% 3,081 4,160 35.0%
Net Profit Margin (%)9.3%8.9% 15.8%19.8% 
No. of Shares (m) 143.4 143.4   143.4 143.4  
Diluted Earnings per share* (Rs)12.713.2 28.638.6 
P/E Ratio (x)    4.2 
*(annualised)      

The main feature of the bank's performance in FY03 has been a strong improvement in its net interest margins. This has been mainly due to considerable savings in interest costs. The bank has been able to save interest costs mainly on account of the falling interest rate scenario. Also a higher leverage on retail deposits could have further helped the bank in lowering its costs. While topline growth looks subdued at 8% compared to its private sector peers, it must be understood that this is on a higher base.

Fall in interest expenses have led to a considerable rise in net interest income. However a 40% rise in operating expenses has adversely affected the net profits of the bank in the March quarter. For the full year, too, there has been a 23% rise in other income. Growth in operating expenditure seems to have been mainly on account of expenditure on infrastructure in form of ATM network and additional branches. The adverse effect of increase in operating expenses is apparent as seen by the fall in operating margins.

The bank has significantly raised its provisioning for NPAs in FY03. Corporation Bank has one of the lowest level of NPAs among public sector banks and the higher provisioning for NPAs will ensure that its NPA levels fall further. 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. Despite higher provisioning, the bank has been able to grow its bottomline by a significant 35% in FY03. 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.

The stock is currently trading at Rs 165 at price to book ratio of 1x. The bank is holding its analyst meet this evening. Post that we will be able to shed more light on the performance.

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