Hold Corporation Bank; target of Rs 440: Emkay
Emkay Global Financial Services has recommended hold rating on Corporation Bank in its August 1, 2012 research report. According to research firm, bank's valuations remain attractive at 0.7x FY13 and 0.6x FY14 ABV. Lower core-tier I ratio at sub-8% will warrant capital infusion in future.
August 27, 2012 / 12:03 IST
Emkay Global Financial Services has recommended hold rating on Corporation Bank in its August 1, 2012 research report. According to research firm, bank's valuations remain attractive at 0.7x FY13 and 0.6x FY14 ABV. Lower core-tier I ratio at sub-8% will warrant capital infusion in future.
“Corporation Bank (CRPBK IN) Q1FY13 NII at Rs8.1bn (+14% yoy) and net profit at Rs 3.7bn (+5% yoy) was inline with estimates. Growth in non-interest came in lower at 13% yoy with fee income at Rs2.1bn up 11% yoy. NII growth at 14% yoy was led by 25% yoy growth in loan portfolio. Margins however contracted 12bps yoy to 2.3%. Deposits grew 14% yoy, led by 14% yoy growth in both CASA and term deposits. Share of bulk deposits remains high at 35%. LDR remained stable sequentially at 74%.”“Asset quality deteriorated with GNPA / NNPA at Rs16.9bn / Rs11.8bn up 33%+ each sequentially. Slippages came in at Rs7.2bn (2.9% annualized) and included from few large accounts. Silver lining came in form of higher recoveries / up-grades at Rs 2.1bn (67% of opening NPA). NPA provisions stood at Rs2.4bn implying credit cost at 1.0%. PCR (including tech w/off) stood at 61% and mgmt has guided to increase the same to 70% in coming quarters. Q1 witnessed restructuring to the tune of Rs10.8bn with SEB restructuring at Rs9.5bn. Cumulative restructured portfolio has increased to Rs87bn (9% of loans). Slippage in restructured book stands at Rs11.4bn (36% of FY11 book).”"Excess dependence on bulk deposits has restricted margin improvement for the bank. Additionally, new risk has also emerged in form of recent finance ministry directive towards cap on bulk deposits (including CD’s) at 15% of deposits for FY13. Valuations remain attractive at 0.7x FY13 and 0.6x FY14 ABV. Lower core-tier I ratio at sub-8% will warrant capital infusion in future. However, any capital infusion by the government at current suboptimal valuations will be a risk to our ABV estimates to the tune of 7%. Dividend yield at 6% provides some respite. We have lowered our ABV estimates marginally factoring in higher slippages / credit cost. We have valued the bank at 0.8x FY13 ABV (0.8x avg FY13-14ABV earlier). Downgrade to hold with target price at Rs 440,” says Emkay Global Financial Services research report.Non-Institutions holding more than 90% in Indian cosDisclaimer: 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
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
