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Central Bank of India 3QFY2013 performance highlights and results update

Contributed by Angel Broking

For 3QFY2013, Central Bank of India (Central Bank) reported a healthy operating profit growth of 26.9% yoy, which was on expected lines. Profit before tax was higher by 18.6% yoy, however tax write-back of Rs.29cr during the quarter compared to tax expenses of Rs.14cr in 3QFY2012, aided the bank to report earnings growth of 59% yoy.

Advances growth healthy; Asset quality pressures persists: During 3QFY2013, the bank’s advances grew by a healthy 18.9% yoy. Growth in deposits remained moderate at 12.7% yoy, partly due to the bank’s conscious strategy to reduce high cost bulk deposits (bulk deposits and CDs as % to overall deposits at 25.7% in 3QFY2013 compared to 31.8% in 3QFY2012). CASA ratio came off by 96bp qoq and 41bp yoy to 32%. The reported NIMs for the bank declined marginally by 4bp qoq to 2.6%. Growth in the bank’s non-interest income (excluding treasury) was muted at 1.6% yoy, despite a strong performance on the CEB front (up 24.3% yoy) and higher recoveries, as income from ‘others’ segment nearly halved on a yoy basis. The bank continued to witness pressure on the asset quality front, as gross and net NPA levels for the bank increased sequentially by 5.1% and 2.9%, respectively. Annualized slippages ratio for the quarter stood elevated at 3.3%, though lower than 4.8% in 2QFY2013 and 4.5% in 2QFY2012. PCR improved slightly by 134bp qoq, but remains amongst the lowest in the industry at 41.2%. Out of the Rs.8,938cr of gross NPAs, ~Rs.5,979 are from accounts worth above Rs.1cr (210 accounts). As per the Management, there is strong focus of the bank in recovering these accounts. The bank restructured loans worth Rs.1,603cr during the quarter taking its outstanding restructured book to Rs.22,182cr (14% of net advances).

Outlook and valuation: At the CMP, the stock is trading at 0.7x FY2014E ABV compared to its trading range of 0.6–1.7x with a median of 1.2x since its listing in 2007. While the stock has corrected 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 Neutral rating on the stock.