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Central Bank of India 3QFY2012 performance highlights and results update

Contributed by Angel Broking

For 3QFY2012, Central Bank of India reported disappointing results with a 53.6% qoq and 71.9% yoy dip in its net profit, due to disappointing operating performance as well as higher provisioning expenses. Even the sluggish PAT was aided by reversal of earlier year’s tax provision of Rs.112cr. Disappointment on the asset-quality front continued with elevated slippages and ballooning restructuring. We recommend Reduce on the stock.

NIM dips; Asset quality remains under stress: The bank’s business growth was moderate during 3QFY2012, with advances growing by 4.0% qoq (up 14.6% yoy) and deposits almost flat sequentially (up 15.4% yoy). Overall CASA deposit growth was rather slow at 7.3% yoy, leading to a sharp 244bp yoy fall in CASA ratio to 32.5%. The bank’s reported NIM fell by a rather steep 47bp qoq to 2.53% on the back of a 15bp qoq fall in yield on advances and a 9bp rise in cost of deposits. The bank had to reverse interest income of Rs.110cr on NPAs recognized on switchover to the system-based NPA recognition platform, which partly exacerbated the fall in NIM. Asset quality deteriorated during 3QFY2012 as well, with gross NPA ratio rising to 3.7% (2.9% in 2QFY12) and net NPA ratio climbing to over 2.0% (1.4% in 2QFY12). Slippages for 3QFY2012 stood at a steep Rs.1,464cr (annualized slippage ratio of 4.5%) compared to an average quarterly run-rate of Rs.540cr over the past six quarters. A late starter in CBS implementation, the bank commenced the switchover to NPA-based recognition system only post 1QFY2012. The bank will switchover for accounts of Rs.5lakhs and below in 4QFY2012. The bank also restructured loans amounting to over Rs.3,600cr during 3QFY2012 alone and took a hit of ~Rs.250cr for NPV loss on a telecom account, which got restructured during the quarter.

Outlook and valuation: At the CMP, the stock is trading at 0.8x FY2013E ABV compared to its trading range of 0.6–1.5x with a median of 1.1x since its listing in 2007. However, we believe this is outweighed by the substantial near-term concerns on the asset quality. While the stock has corrected substantially over the past year, it is still trading higher than some of the other mid-size PSU banks with a better asset-quality outlook and return ratios. Hence, we recommend a Reduce rating on the stock with a target price of Rs.79.