corporation bank, 7th february, 2013

7/29/2019 Corporation Bank, 7th February, 2013

1/11

Please refer to important disclosures at the end of this report 1

Pre-prov. profit 759 686 10.7 826 (8.1)

Source: Company, Angel Research

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 duringthe quarter, pushed up the loan loss provisioning by 83.2% yoy and henceearnings declined by 24.6% yoy.

During 3QFY2013, the

banks 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 `67crcompared to `112cr reported in 3QFY2012. Hence, the overall other income

witnessed a higher decline of 12.4% yoy to `387cr. The banks 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 `701cr, much higher than `445cr in

2QFY2013 and `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

~`255cr, thereby taking its outstanding restructured book to `8,895cr.

The banks low CASA ratio (20.5% as of 3QFY2013) has

contributed to higher margin pressures. At the current market price, the stock tradesat 0.6x FY2014E ABV, below its historic trading range of 0.7-1.4x and median of

1.0x.

% chg 54.5 7.0 9.9 20.5

% chg 20.8 11.5 (9.1) 3.3

NIM (%) 2.4 2.1 2.1 2.2

P/E (x) 4.4 4.0 4.4 4.2

P/ABV (x) 0.9 0.8 0.7 0.6

RoA (%) 1.1 1.0 0.8 0.8

RoE (%) 21.9 20.4 16.2 14.9


CMP `421

Target Price `517

Investment Period 12 Months

Stock Info

Sector Banking

Market Cap (` cr) 6,381

Beta 0.9

52 Week High / Low 528/362

Avg. Daily Volume 15,483

Face Value (`) 10

BSE Sensex 19,751

Nifty 5,987

Reuters Code CPBK.BO

Bloomberg Code CRPBK@IN

Shareholding Pattern (%)

Promoters 58.5

MF / Banks / Indian Fls 30.6

FII / NRIs / OCBs 3.9

Indian Public / Others 7.0

Abs. (%) 3m 1yr 3yr

Sensex 5.3 12.2 21.7

Corporation Bk 7.7 0.2 (1.4)

022 3935 7800 Ext: 6808

[email protected]

022 3935 7800 Ext: 6872

[email protected]

Performance Highlights

3QFY2013 Result Update | Banking

February 5, 2013


2/11

Corporation Bank | 3QFY2013 Result Update

February 5, 2013 2

Exhibit 1:3QFY2013 performance (standalone)

- on Advances / Bills 2,838 2,811 1.0 2,457 15.5 8,390 6,872 22.1- on investments 911 825 10.4 816 11.6 2,524 2,265 11.4

- on balance with RBI & others 1 11 (87.1) 12 (87.7) 32 25 26.9

- on others 120 98 23.1 78 55.3 320 270 18.7

Other income excl. treasury 320 280 14.3 330 (3.1) 885 861 2.7

- Fee Income (CEB income) 239 239 (0.3) 210 13.5 685 595 15.0

- Treasury Income 67 46 45.4 112 (39.8) 156 269 (42.0)

- Recov. from written off a/cs 44 25 75.1 55 (19.5) 90 127 (29.1)

- Others 37 15 144.3 65 (43.0) 110 139 (20.8)

- Employee expenses 263 204 29.3 247 6.5 706 697 1.3

- Other opex 248 240 3.4 230 7.8 715 643 11.1

891 673

- Provisions for NPAs 324 229 41.3 177 83.2 793 440 80.3

- Provisions for Investments (1) (24) - 50 - (90) 140 -

- Other Provisions 83 64 30.5 74 12.1 189 94 101.4

50 11 342.9 122 (59.3) 144 274 (47.5)

Effective Tax Rate (%) 14.1 2.7 1139bp 23.3 (922)bp 11.8 19.2 (742)bp


Exhibit 2:3QFY2013 Actual vs estimatesNet interest income 883 857 3.0

Other income 387 374 3.5

Operating expenses 511 494 3.5

Provisions & cont. 406 260 56.1

PBT 353 477 (26.0)

Prov. for taxes 50 95 (47.9)



3/11


February 5, 2013 3

Exhibit 3:3QFY2013 performance analysis (standalone)

Advances (`

cr) 104,443 98,161 6.4 92,378 13.1Deposits (`cr) 140,384 143,738 (2.3) 126,607 10.9

Credit-to-Deposit Ratio (%) 74.4 68.3 611bp 73.0 143bp

Current deposits (`cr) 9,818 10,786 (9.0) 9,641 1.8

Saving deposits (`cr) 18,904 19,276 (1.9) 17,115 10.5

CASA deposits (` cr) 28,722 30,062 (4.5) 26,756 7.3

CASA ratio (%) 20.5 20.9 (45)bp 21.1 (67)bp

CAR (%) 12.6 13.1 (48)bp 12.8 (27)bp

Tier 1 CAR (%) 8.1 8.4 (32)bp 7.9 21bp

Cost of deposits 8.1 8.3 (24)bp 7.6 42bp

Yield on advances 11.6 11.9 (32)bp 11.9 (36)bp

Yield on investments 7.8 7.7 5bp 7.8 (1)bp

Reported NIM 2.4 2.2 12bp 2.7 (31)bp

Cost-to-income ratio 40.3 39.3 99bp 36.6 362bp

Gross NPAs (` cr) 2,284 1,949 17.2 1,249 82.9

Gross NPAs (%) 2.2 2.0 21bp 1.4 83bp

Net NPAs (`cr) 1,698 1,351 25.6 885 91.8

Net NPAs (%) 1.6 1.4 25bp 1.0 67bp

Provision Coverage Ratio (%) 58.0 60.4 (242)bp 62.9 (486)bp

Slippage ratio (%) 2.8 1.8 102bp 1.7 107bp

Loan loss prov. to avg. assets (%) 0.8 0.6 21bp 0.5 30bp


Business growth moderates; NIM improves sequentially

During 3QFY2013, the banks business grew at a moderate pace, with advances

and deposits registering 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 a moderate CASA deposits growth

of 7.3% yoy. The CASA ratio for the bank dipped by 67bp yoy and 45bp qoq to

20.5%. The bank has added around 280 branches in the last fifteen months and

has healthy branch addition plans, which is expected to strengthen its liability

franchise going ahead.

During 3QFY2013, cost of deposits for the bank came off by 24bp qoq to 8.1%.

While the yield on advances for the bank also moderated by 32bp qoq to 11.6%,

partly due to higher slippages, yield on investments improved marginally by 5bp to

7.8%. The reported NIM for the bank improved sequentially by 12bp to 2.4%.


4/11


February 5, 2013 4

Exhibit 4:Business growth moderates


Exhibit 5:Cost of deposits sequentially lower by 24bp


Exhibit 6:Yield on advances came off by 32bp qoq


Exhibit 7:NIM improved by 12bp sequentially


Subdued performance on non-interest income (excl. treasury)

front, on back of lower recoveries and decline in forex income

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 to `44cr. Income from forex transactions for the bank halved on a yoy

basis to `28cr. The treasury income for the bank came in at `67cr compared to`112cr reported in 3QFY2012. Hence, overall other income witnessed a higher

decline of 12.4% yoy to `387cr.

Asset quality pressures continue

The banks 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

`701cr, much higher than `445cr in 2QFY2013 and `373cr in 3QFY2012.

Annualized slippages ratio came in at 2.8% compared to 1.8% in 2QFY2013 and1.7% in 3QFY2012. PCR dipped by 242bp sequentially to 58.0%. Additionally, the

bank restructured advances worth ~`255cr, thereby taking its outstanding

restructured book to `8,895cr.

28.4

15.7

24.9

20.2

13.1

28.5

16.6

13.9

19.2

10.9

73.073.8

73.5

68.3

74.4

64.0

66.0

68.0

70.0

72.0

74.0

76.0

-

10.0

20.0

30.0

3QFY12 4QFY12 1QFY13 2QFY13 3QFY13

Adv. yoy chg (%) Dep. yoy chg (%) CDR (%, RHS)

7.64

8.03 8.10

8.30

8.06

7.20

7.40

7.60

7.80

8.00

8.20

8.40


(%)

11.91

11.71

11.62

11.87

11.55

11.25

11.50

11.75

12.00


(%)

2.66

2.412.29

2.232.35

1.50

1.80

2.10

2.40

2.70

3.00


(%)


5/11


February 5, 2013 5

Exhibit 8:Slippages remain at elevated levels...


Exhibit 9:...leading to higher NPA ratios sequentially


Exhibit 10:Opex declined by 4.9% qoq...


Exhibit 11:...hence cost-to-income ratio declined by 176bp


1.7

0.8

2.9

1.8

2.8

0.5 0.5

0.6 0.6

0.8

-

0.2

0.4

0.6

0.8

1.0

-

0.5

1.0

1.5

2.0

2.5

3.03.5


Slippages (%) Credit cost (%, RHS)

1.4

1.3

1.7

2.0

2.2

1.0

0.9

1.2

1.4

1.6

62.9

65.3

61.060.4

58.0

54.0

56.0

58.0

60.0

62.0

64.0

66.0

-

0.5

1.0

1.5

2.0

2.5


Gross NPAs (%) Net NPAs (%) PCR (%, RHS)

247 216 239 204263

230227 227 240

248

478443 466 443

511

-

150

300

450

600


Staff exps (` cr ) Other opex ( cr)

36.6

35.2

41.0

39.3

40.3

1.3

1.11.2

1.1

1.2

1.0

1.0

1.1

1.1

1.2

1.2

1.3

1.3

1.4

20.0

25.0

30.0

35.0

40.0

45.0


Cost-to-income ratio (%) Opex to average assets (%, RHS)


6/11


February 5, 2013 6

Investment arguments

Modern and cost-efficient network to support moderate CASA

growth

During FY2007-12, the CASA deposits of the bank grew at a 15.9% CAGR, which

was quite robust relative to its peers. We believe the banks efficient network

(1,653 branches currently) supported by a consistent track record in early adoption

of emerging technologies creates a positive traction in its deposit franchise, which

is tempered mainly by substantial competition from larger banks.

Low operating cost, owing to corporate-centric business

Large corporates comprise ~47.7% of the banks credit book as of 3QFY2013

(45.7% as of FY2012), leading to relatively low operating costs for the bank.

Consequently, the bank is among the most cost-efficient PSU banks, both in terms

of opex/average assets (1.2x as of 3QFY2013) as well as branch and employee

productivity.

Outlook and valuatio

The banks 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.

Exhibit 12:Key assumptions

Credit growth 13.0 14.0 13.0 15.0

Deposit growth 14.0 13.0 12.0 12.0

CASA ratio 21.1 20.4 21.5 21.0

NIMs 2.0 2.2 2.1 2.2

Other income growth (9.7) 4.0 (6.6) 0.5

Growth in staff expenses 5.0 15.0 7.0 15.0

Growth in other expenses 12.5 15.0 12.5 12.5

Slippages 2.0 1.7 2.5 1.8

Coverage Ratio 62.0 67.5 60.0 70.0

Source: Angel Research


7/11


February 5, 2013 7

Exhibit 13:Change in estimates

NII 3,424 3,459 1.0 4,102 4,167 1.6

Non-interest income 1,411 1,460 3.5 1,468 1,467 (0.0)

Operating expenses 1,938 1,956 0.9 2,229 2,225 (0.2)

Provisions & cont. 1,001 1,325 32.4 1,152 1,353 17.5

PBT 1,897 1,638 (13.6) 2,189 2,056 (6.1)

Prov. for taxes 341 205 (40.0) 710 576 (19.0)

Source: Angel Research

Exhibit 14:P/ABV band


0

20 0

40 0

60 0

80 0

1,000

1,200

1,400

Mar-02

Sep-02

Mar-03

Sep-03

Mar-04

Sep-04

Mar-05

Sep-05

Mar-06

Sep-06

Mar-07

Sep-07

Mar-08

Sep-08

Mar-09

Sep-09

Mar-10

Sep-10

Mar-11

Sep-11

Mar-12

Sep-12

Mar-13

Price (`) 0.5x 0.8x 1.1x 1.4x 1.7x


8/11


February 5, 2013 8

Exhibit 15:Recommendation summary

AxisBk Buy 1,460 1,753 20.0 1.96 2.4 10.5 16.4 1.6 20.1

FedBk Accumulate 508 557 9.5 1.23 1.4 9.9 6.4 1.2 13.1

HDFCBk Neutral 643 - - 3.62 - 17.8 28.1 1.8 22.1

ICICIBk* Buy 1,168 1,404 20.2 1.87 2.2 13.8 22.8 1.5 15.9

SIB Buy 27 34 24.6 1.12 1.4 6.7 6.9 1.0 17.7

YesBk Accumulate 514 576 12.1 2.59 2.9 12.1 24.1 1.5 23.6

AllBk Buy 157 188 19.6 0.69 0.8 4.7 (5.2) 0.8 14.7

AndhBk Neutral 105 - - 0.73 - 4.8 (4.6) 0.8 13.8

BOB Buy 784 935 19.4 0.92 1.1 5.8 5.0 1.0 16.7

BOI Accumulate 342 380 11.3 0.85 1.0 5.2 18.2 0.8 16.0

BOM Neutral 57 - - 0.69 - 4.4 44.3 0.6 16.9

CanBk Accumulate 453 516 13.9 0.83 1.0 5.6 4.1 0.8 14.7CentBk Neutral 79 - - 0.72 - 3.9 95.5 0.5 14.3

DenaBk Buy 106 124 16.2 0.65 0.8 4.3 3.5 0.8 15.9

IDBI# Buy 102 122 19.6 0.63 0.8 4.6 18.4 0.9 14.1

IndBk Buy 190 238 25.3 0.68 0.9 4.4 4.4 1.1 16.8

IOB Accumulate 78 88 13.5 0.53 0.6 3.8 23.9 0.6 13.4

J&KBk Neutral 1,389 - - 1.18 - 6.9 10.4 1.4 18.3

OBC Accumulate 313 336 7.3 0.70 0.8 5.3 23.2 0.8 13.5

PNB Buy 880 1,053 19.7 0.92 1.1 5.2 8.0 1.0 17.5

SBI* Accumulate 2,365 2,600 9.9 1.53 1.7 9.2 21.5 1.0 17.7

SynBk Buy 132 157 18.8 0.74 0.9 4.8 12.4 0.7 16.4

UcoBk Neutral 68 - - 0.77 - 4.5 2.6 0.5 13.5

UnionBk Buy 241 286 18.6 0.80 1.0 5.1 20.7 0.8 16.6

UtdBk Buy 71 86 21.9 0.51 0.6 3.2 20.0 0.7 16.3

VijBk Accumulate 57 62 10.0 0.66 0.7 5.2 9.7 0.5 12.6

Source: Company, Angel Research; Note: *Target multiples=SOTP Target Price/ABV (including subsidiaries),# Without adjusting for SASF

Company background

Corporation Bank is a mid-sized PSU bank, with a balance sheet size of ~`1.6lakh

cr. The bank has a network of 1,650+ branches, mainly concentrated in thesouthern states (~50%), with majority being in the parent state of Karnataka

(~26%). The banks recent branch additions have been largely in rural and

semi-urban areas, which have aided a shift in its branch mix. Resultantly, rural and

semi-urban branches now account for ~52% of the total branches as against

~44% earlier.


9/11


February 5, 2013 9

Income statement (standalone)

- YoY Growth (%) 17.2 12.6 54.5 7.0 9.9 20.5

- YoY Growth (%) 58.2 34.9 (11.3) 18.0 (6.6) 0.5

- YoY Growth (%) 30.6 21.4 25.5 10.4 4.5 14.5

- YoY Growth (%) 17.3 20.4 30.3 8.6 9.7 13.7

- YoY Growth (%) 40.0 22.0 22.7 11.6 1.3 15.1

- YoY Growth (%) 96.8 29.8 45.2 38.1 39.3 2.1

- YoY Growth (%) 30.1 19.9 16.3 2.1 (17.1) 25.5

- as a % of PBT 35.6 29.6 26.9 20.2 12.5 28.0

- YoY Growth (%) 21.5 31.1 20.8 11.5 (9.1) 3.3

Balance sheet (standalone)

Share Capital 143 143 148 148 148 148Reserve & Surplus 4,753 5,631 6,990 8,128 9,216 10,344

Deposits 73,984 92,734 116,748 136,142 152,479 170,777

- Growth (%) 33.5 25.3 25.9 16.6 12.0 12.0

Borrowings 2,072 4,290 10,628 9,648 9,044 10,093

Tier 2 Capital 2,738 4,788 5,338 4,600 4,485 4,373

Other Liab. & Prov. 3,215 4,081 3,658 4,894 5,504 6,129

Cash Balances 5,591 8,835 8,142 9,288 6,862 6,831

Bank Balances 4,949 1,957 2,250 2,410 2,713 3,028

Investments 24,938 34,523 43,453 47,475 53,773 56,995

Advances 48,512 63,203 86,850 100,469 113,530 130,559

- Growth (%) 23.8 30.3 37.4 15.7 13.0 15.0

Fixed Assets 299 293 329 356 382 413

Other Assets 2,617 2,857 2,484 3,563 3,618 4,037

- Growth (%) 30.8 28.5 28.5 14.0 10.6 11.6


10/11


February 5, 2013 10

Ratio analysis

NIMs 2.3 2.0 2.4 2.1 2.1 2.2Cost to Income Ratio 37.4 37.1 38.5 37.9 39.8 39.5

RoA 1.2 1.2 1.1 1.0 0.8 0.8

RoE 19.6 21.9 21.9 20.4 16.2 14.9

CASA Ratio 31.4 28.6 26.0 22.1 21.5 21.0

Credit/Deposit Ratio 65.6 68.2 74.4 73.8 74.5 76.5

CAR 13.6 15.4 14.1 13.0 12.6 12.2

- Tier I 8.9 9.3 8.7 8.3 8.5 8.4

Gross NPAs 1.1 1.0 0.9 1.3 2.5 3.0

Net NPAs 0.3 0.3 0.5 0.9 1.6 1.3

Slippages 0.6 1.0 1.3 1.4 2.5 1.8

Loan Loss Prov. /Avg. Assets 0.2 0.3 0.4 0.4 0.7 0.6

Provision Coverage 75.3 80.8 74.7 65.3 60.0 70.0

EPS 62.2 81.6 95.4 106.4 96.7 99.9

ABVPS (75% cover.) 341.4 402.6 481.5 542.3 585.1 689.2

DPS 12.5 16.5 20.0 20.5 20.0 20.5

PER (x) 6.8 5.2 4.4 4.0 4.4 4.2

P/ABVPS (x) 1.2 1.0 0.9 0.8 0.7 0.6

Dividend Yield 3.0 3.9 4.7 4.9 4.7 4.9

NII 2.2 1.9 2.3 2.0 2.0 2.2

(-) Prov. Exp. 0.5 0.5 0.5 0.6 0.8 0.7

Adj. NII 1.7 1.4 1.8 1.4 1.2 1.5

Treasury 0.6 0.6 0.2 0.2 0.1 0.1

Int. Sens. Inc. 2.3 2.1 1.9 1.7 1.4 1.5

Other Inc. 0.9 0.9 0.9 0.8 0.7 0.7

Op. Inc. 3.2 2.9 2.8 2.4 2.1 2.2

Opex 1.4 1.3 1.3 1.2 1.1 1.2PBT 1.8 1.7 1.5 1.3 1.0 1.1

Taxes 0.6 0.5 0.4 0.3 0.1 0.3

Leverage 16.8 18.6 19.8 19.9 19.5 19.3


11/11


February 5, 2013 11

Research Team Tel: 022 - 39357800 E-mail: [email protected] Website: www.angelbroking.com

This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investmentdecision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make

such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies

referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and

risks of such an investment.

Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make

investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this

document are those of the analyst, and the company may or may not subscribe to all the views expressed within.

Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and

trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's

fundamentals.

The information in this document has been printed on the basis of publicly available information, internal data and other reliablesources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as thisdocument is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any wayresponsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report .Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify,nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. WhileAngel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory,compliance, or other reasons that prevent us from doing so.

This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced,

redistributed or passed on, directly or indirectly.

Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or

other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in

the past.

Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in

connection with the use of this information.

Disclosure of Interest Statement Corporation Bank

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to -15%) Sell (< -15%)

Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors

corporation bank, 7th february, 2013

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