Buy Corporation Bank; target of Rs 710: Unicon Investment

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Buy Corporation Bank; target of Rs 710: Unicon Investment

Unicon Investment is bullish on Corporation Bank and has recommended buy rating on the stock with a target of Rs 710 in its May 4, 2011 research report.

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Unicon Investment is bullish on Corporation Bank and has recommended buy rating on the stock with a target of Rs 710 in its May 4, 2011 research report.

"Corporation Bank (CORP) PAT grew by 10.6% to INR 3453 Mn (below our estimates of INR 3951Mn) owing to the provisions made for the pensions of retired and existing employees. The operating profit grew by 37% to INR 7466 (below our estimates of INR 8101Mn). The net interest income has registered a lower growth of 19% to INR 7618 Mn due to higher interest expenses. The non interest income from core areas also increased by 31% and reached INR 2.69 Bn in Q4FY11. The fee income has increased by 85% & 80% on QoQ & YoY basis respectively, Business growth remained strong at 31% YoY to INR 2.03 Tn, with advances & deposits growing 37% & 26% YoY to INR 868 Bn & INR 1167 Bn respectively in Q4FY11."

"Advances growth, led by the SME segment, may exert some pressure on asset quality. CASA ratio was at 26%. The gross NPAs on FY11 were 0.91% of gross advances, lower than the corresponding value (1.02%) for FY10. However, the net NPAs increased from 0.31% in FY10 to 0.46% in FY11. Slippages fell to INR 1.6 Bn (1.05%; annualised), which coupled with higher recoveries (INR ~800 Mn from one account) and write-offs (INR ~1.3 Bn) led to a 14% & 4% QoQ decline in GNPA & NNPA respectively. Total restructured assets stood at INR 53 Bn (3.3% of total assets) while total slippages from restructured assets were at 9.9% as on date. The bank's capital adequacy ratio for FY11 was 12.9% (as compared to 15% in FY10) of the risk weighted assets. The bank opened 206 branches, 105 ATMs and 1300 branchless Banking units in the current financial year."

"Corporation Bank is improving in terms of its business. We expect credit growth of ~24% in FY12E. Margin improvement is going to be a challenge in increasing interest rate cycle; however, margins are likely to be cushioned with higher CASA ratio of ~27% in FY12E. At CMP stock trades at 0.9x its FY12E book value. We have BUY rating on the stock for a target of INR 710," says Unicon Investment research report.    

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To read the full report click on the attachment