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Corporation Bank 3QFY2013 performance highlights and results update

Contributed by Angel Broking

For 3QFY2013, Corporation Bank reported subdued operating performance, with operating income and operating profit de-growth of 2.5% and 8.1% yoy, respectively, which was in-line with our expectations. Higher slippages during the quarter, pushed up the loan loss provisioning by 83.2% yoy and hence earnings declined by 24.6% yoy.

Business growth moderates; NIM improves sequentially: During 3QFY2013, the bank’s business grew at a moderate pace, as both advances and deposits registered a growth of 13.1% and 10.9% yoy, respectively. While, saving deposits grew at a moderate pace of 10.5% yoy, growth in current deposits came in subdued at 1.8% yoy, which resulted in moderate CASA deposits growth of 7.3% yoy. The CASA ratio for the bank dipped by 67bp yoy and 45bp qoq to 20.5%. Although yield on advances moderated by 32bp qoq, the NIM improved by 12bp sequentially to 2.4%, aided by a 24bp qoq fall in costs of deposits and 5bp sequentially higher yield on investments. Despite a moderate growth of 13.5% yoy in CEB income, the overall non-interest income (excluding treasury) de-grew by 3.1% yoy, largely due to lower recoveries and decline in forex income. Recoveries from written-off accounts de-grew by 19.5% yoy, while forex income for the bank halved on a yoy basis. The treasury income for the bank came in at Rs.67cr compared to Rs.112cr reported in 3QFY2012. Hence, the overall other income witnessed a higher decline of 12.4% yoy to Rs.387cr. The bank’s asset quality pressures continued during 3QFY2013, with both gross and net NPA levels increasing on an absolute basis by 17.2% and 25.6% qoq, respectively. Gross and Net NPA ratios were higher sequentially by 21bp and 26bp respectively to 2.2% and 1.6%. Slippages during the quarter came in at Rs.701cr, much higher than Rs.445cr in 2QFY2013 and Rs.373cr in 3QFY2012. The annualized slippages ratio came in at 2.8% compared to 1.8% in 2QFY2013 and 1.7% in 3QFY2012. PCR dipped by 242bp sequentially to 58.0%. Additionally, the bank restructured advances worth ~Rs.255cr, thereby taking its outstanding restructured book to Rs.8,895cr.

Outlook and valuation: The bank’s low CASA ratio (20.5% as of 3QFY2013) has contributed to higher margin pressures. At the current market price, the stock trades at 0.6x FY2014E ABV, below its historic trading range of 0.7-1.4x and median of 1.0x. We value the bank at 0.8x FY2014E ABV and recommend a Buy rating on the stock with a target price of Rs.517.