Buy Corporation Bank; target of Rs 522: Angel Broking

Angel Broking is bullish on Corporation Bank and has recommended buy rating on the stock with a target of Rs 522 in its May 4, 2012 research report.

“During 4QFY2012, Corporation Bank registered flat yoy growth in net profit to Rs351cr, which was below our estimates mainly on account of lower-than-expected operating income (due to lower NIM) and higher-than-expected provisioning. Key positive from the results was stability seen on the asset quality front. We recommend Buy on the stock.”

“Advances for the bank grew at a healthy pace of 8.8% qoq, largely driven by segments such as retail, SME and agri. Deposits also grew by healthy 7.5% qoq. CASA ratio for the bank declined by 383bp yoy to 22.1%, on the back of a 12.5% yoy decline witnessed in current account deposits despite reasonable 9.7% yoy growth in saving deposits. Sequential dip in yield on advances by 20bp, coupled with qoq an increase of 39bp in cost of deposits, led to a qoq decline in reported NIM by 25bp to 2.41%. Non-interest income excl. treasury dipped by 19.9% yoy to Rs327cr, mainly on the back of a 15.3% yoy decline in fee income to Rs236cr and lower recoveries from written-off accounts (Rs38cr in 4QFY2012 compared to Rs93cr in 4QFY2011). The bank’s asset quality continued to remain at stable levels, with both gross and net NPA ratio declining sequentially by 9bp and annualized slippage ratio at comfortable levels of 0.75%. Provision coverage ratio also improved by 242bp qoq to 65.3%. The bank’s restructured book grew sharply during the quarter by ~Rs3,000cr (absolute increase of 66.1% qoq) to Rs7,539cr, which primarily included accounts of Air India and Rajasthan SEBs. Going forward, management guided that ~Rs600cr advance to U.P. discom is the only major advance in restructuring pipeline, while adding that there would be no NPV loss on any SEB advances.”

“The bank’s low CASA ratio (22.1% as of FY2012) has contributed to higher margin pressures. However, currently the stock is trading at 0.5x FY2014E ABV, one of the cheapest in the industry, which we believe provides sufficient margin of safety. We value the bank at 0.7x FY2014E ABV and recommend Buy on the stock with a target price of Rs522,” says Angel Broking research report. 

Non-Institutions holding more than 90% in Indian cos

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

To read the full report click on the attachment

Read More