Buy Corporation Bank; target of Rs 707: KRChoksey

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Buy Corporation Bank; target of Rs 707: KRChoksey

KRChoksey is bullish on Corporation Bank and has recommended buy rating on the stock with a target of Rs 707 in its March 16, 2011 research report.

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KRChoksey is bullish on Corporation Bank and has recommended buy rating on the stock with a target of Rs 707 in its March 16, 2011 research report.

"Corporation Banks started its operations in 1906 with an initial capital of just Rs.5000. Corporation Bank has recorded Rs. 1,67,000 Crore mark in business with over 3500 service outlets across the nation, served by committed and dedicated 13,000 plus Corp bankers. In 1997, it became the Second Public Sector Bank in the country to enter capital market, the IPO of which was over- subscribed by 13 times. The Bank has many " firsts " to its credit - Cash Management Services, Gold Banking, m-Commerce, " Online " approvals for Educational loans, 100% CBS Compliance and more recently, its pioneering efforts to take the technology to the rural masses in remotest villages through low-cost branchless banking - Business Correspondent model."

"Corporation Bank has been growing advances at 27% CAGR over FY06-F10, outpacing sector by ~ 6%, driven by 37% corporate loan book which led to the better asset quality. Deposits growth was well above the industry growth, resulting 500 bps cut in CD ratio from 73% in FY06 to 68% in FY10. Advances grew by 14% during 9MFY11 whereas deposits grew by 6.2% during the same period. Advances to be re-priced more than deposits: 61% of the advances are to get re-priced compared to 55% of deposits which would lead to the improvement in Margins. Peers suggests that they have more of deposits to get re-priced compared to their advances which could face them margins problem going further. Bank is expanding its branch network to boost its deposit franchise. Bank opened 100 branches in FY10 and 200 branches in FY11. Bank is planning to open 500 more branches till FY15 in Tier III and Tier IV cities which can earn better CASA and better margins and lead to the decline in cost of funds. Cost to Income ratio has shown a positive improvement declining by 430 bps from 41.4% to 37.1% between FY06 and FY10. Going further, we believe cost to income ratio to stabilize. Branch expansion and recruitment of employees could lead to the marginal increase in its cost."

"Corporation bank has one of the best asset quality in the industry compared to its peers (like Indian Overseas Bank, Indian bank and OBC) with a provision coverage ratio of 73% (including technical written-off) which declined from 78.5% in the previous quarter. As on Q3FY11 the Corporation bank slippages ratio was 1.8% from 1% in preceding quarter primarily led by slippages of Rs 120 cr in crop loan. At Rs 553, the stock is trading at 1.4xFY10 adjusted book and 7 xFY10 earnings which is in line with its peers. Historically, the stock has been trading at 1x book value. We recommend a 'BUY' with a target price of Rs 707 giving a potential upside of 28% from current levels on the back of low fee income and low CASA ratio," says KRChoksey research report.

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To read the full report click on the attachment