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					                                                                                                                                                                          CORPORATION BANK
                                                                                                                                                                                 RESEARCH
 EQUITY RESEARCH                                                                                                                                                                            August 18, 2009

RESULTS REVIEW                                                                                                               Corporation Bank                                                          Hold
                                                                                                                             Near-to-medium term growth priced-in
Share Data
Market Cap                                                                                Rs. 54.50 bn                       Corporation Bank’s (CorpBank's) net profit increased 41.8% yoy to

Price                                                                                             Rs. 380.2                  Rs. 2.6 bn. Although impressive, the Company's growth was largely

BSE Sensex                                                                                         15035.26                  driven by a surge in the profit on the sale of investments. The Bank’s
                                                                                                                             operational efficiency declined sequentially, despite the improvement in
Reuters                                                                                          CRBK.BO
                                                                                                                             its margin. We expected the Bank to expand its loan book, which it was
Bloomberg                                                                                        CRPBK IN
                                                                                                                             unable to do due to the low credit-demand scenario. This reduces our
Avg. Volume (52 Week)                                                                                              0.03
                                                                                                                             estimates for loan growth in FY10, although we have increased it
52-Week High/Low                                                                        Rs. 392 / 155
                                                                                                                             thereafter. In addition, we have increased the estimates for the core-fee
Shares Outstanding                                                                                 143.4 mn
                                                                                                                             income growth. These changes bolster our fair-value estimate to Rs. 404,
Valuation Ratios                                                                                                             which implies limited upside from the present level. Currently, the stock
                                                                      2010E                               2011E              trades at a P/B of ~1.1x, which is high, considering the level of its NPAs
EPS (Rs.)                                                               71.2                                  88.6           and restructured asset portfolio. Therefore, we downgrade our rating to
+/- (%)                                                               13.4%                               24.6%              Hold.
PER (x)                                                                    5.3x                                    4.3x
                                                                                                                             Advances growth likely to move up: Contrary to our estimates,
P / PPP (x)                                                                2.4x                                    1.9x
                                                                                                                             CorpBank’s advances fell by 2.3% sequentially. This, we believe, could
P / ABV (x)                                                                1.0x                                    0.8x      be an outcome of the low credit demand prevalent in Q1’10. For Q2’10,
Shareholding Pattern (%)                                                                                                     we estimate the Bank’s advances to grow by 7-8%. This is because the
Promoter                                                                                                            57       Bank has arranged for funds by (a) raising Rs. 6.5 bn in Tier I and Tier II
FIIs                                                                                                                   3     bonds, and (b) garnering a stable time deposit base over the last two
Institutions                                                                                                        35       quarters. In addition, we expect credit demand to revive in the
Public & Others                                                                                                        5     subsequent quarters.

Relative Performance                                                                                                         Margins likely to remain stable: The Bank’s NIM increased by 7 bps
                                                                                                                             over the previous quarter to 2.26%. This was because the cost of funds
 400
                                                                                                                             declined at a faster pace than the yield on advances. For Q2’10 we
                                                                                                                             Key Figures
 300
                                                                                                                             Quarterly Data               Q1'09 Q4'09 Q1'10 YoY %   QoQ%    FY08    FY09 YoY %
                                                                                                                             (Figures in Rs. mn, except per share data)
 200
                                                                                                                             Net Interest Income          3,780 4,283 4,675 23.7%    9.2% 14,535 16,963 16.7%
                                                                                                                             Net Operating Income         5,356 9,216 8,269 54.4% (10.3%) 21,556 28,077 30.3%
 100
                                                                                                                             Pre-Prov Operating Profit    3,210 6,747 5,712 78.0% (15.3%) 12,633 18,058 42.9%
       Aug-08




                                                                               Apr-09




                                                                                                                    Aug-09
                                                                                        May-09
                Sep-08
                         Oct-08
                                  Nov-08
                                           Dec-08
                                                    Jan-09
                                                             Feb-09




                                                                                                 Jun-09
                                                                                                          Jul-09
                                                                      Mar-09




                                                                                                                             Net Profit                   1,843 2,605 2,612 41.8%   0.3%    7,504   9,003 20.0%

                                                                                                                             Cost to Income Ratio        40.1% 26.8% 30.9%    -      -      41.4% 35.8%     -
                         CRPBK                                 Rebased BSE Index                                             NIM                         2.43% 2.19% 2.26%    -      -        -     -       -
                                                                                                                             NPA ratio                   0.36% 0.29% 0.32%    -      -      0.33% 0.29%     -
                                                                                                                             Per Share Data (Rs.)
                                                                                                                             PPP per share                 22.4  47.0  39.8 77.9% (15.4%)    88.1   125.9 43.0%
                                                                                                                             Diluted EPS                   12.9  18.2  18.2 41.7%    0.3%    52.3    62.8 20.0%
                                                                                                                             ABVPS                        307.6 338.9 341.4 11.0%    0.7%   294.8   341.4 15.8%

                                                                      Please see the end of the report for disclaimer and disclosures.                                                                -1-
                                                                                CORPORATION BANK
                                                                                       RESEARCH
EQUITY RESEARCH                                                                                 August 18, 2009

                                      expect the NIM to remain largely stable as the yields are likely to decline
                                      due to the Bank's aggressive attempts at the expansion of their loan
                                      book. Also, the Bank has reduced the interest rates on deposits (across
                                      all maturities), which should help decrease its incremental cost of funds.

                                      Asset quality remains a concern: During the quarter the gross NPAs
                                      increased 9.4% sequentially to Rs. 6.1 bn, pulling up the gross NPA ratio
                                      to 1.29% from 1.14% in Q4’09. Two-thirds of the existing gross NPAs
                                      pertain to the priority sector. Concern arises about the total amount spent
                                      on restructuring during the quarter—Rs. 13.6 bn (2.9% of advances)—as
                                      it constitutes 56.6% of the total amount restructured in the last five
                                      quarters. Of this, Industry and Real Estate form 67.5% and 23%,
                                      respectively.
                                      We expect the economy to come under pressure, particularly the
                                      Agriculture and allied sectors, due to the delayed monsoon. Therefore,
                                      we do not expect delinquencies to abate any time soon. Our base-case
                                      scenario assumes 1.42% gross NPA for Q2’10.



                                      Valuation

                                      We have valued the Bank using Discounted Equity Cash Flow (DECF)
                                      model, using a cost of equity of 16.24% and an estimated terminal growth
                                      rate of 9.56%. This results a fair-value estimate of Rs. 404, which implies
                                      an upside of 6.2% over the current market price of Rs.380.15.

                                      The key drivers of change that increased our fair value estimate are (a)
                                      our improved outlook on business-growth after incorporating Tier I and
                                      Tier II bonds, and a stable source of funding.

                                      Sensitivity Analysis of the Fair Value Estimate:

                                                                             Cost of Equity
                                         Terminal growth




                                                             404   15.94%   16.09%     16.24%   16.39%    16.54%
                                                           9.26%      408      400        391      383       375
                                                           9.41%     415      406        397      389          381
                                                           9.56%     422      413        404      395          387
                                                           9.71%     430      420        410      401          393
                                                           9.86%     437      427        417      408          399




                  Please see the end of the report for disclaimer and disclosures.                       -2-
                                                                                                                CORPORATION BANK
                                                                                                                       RESEARCH
EQUITY RESEARCH                                                                                                                                August 18, 2009

                                        Result Highlights and Outlook

                                        Drivers of Profit: Corporation Bank recorded a 41.8% yoy increase in its
                                        net profit, taking it up to Rs. 2.6 bn. Although impressive, it was chiefly
                                        driven by a strong rise in the profit from sale of investments (from Rs.
                                        44.9 mn to Rs. 1,850 mn). Net of this gain, and adjusted for tax, the net
                                        profit would have decreased by 19.6% yoy.

                                        Over the previous quarter the net profit was almost flat (+0.3%).
                                        However, net of profit on sale/revaluation of investments and adjusted for
                                        tax, the increase in net profit would have been 48.6%. The drivers of this
                                        robust growth in operational efficiency were the net interest income, the
                                        rise in the NIM, and the decrease in provisioning.

                                                                                         QOQ Net Incom e Walk
                                3.50

                                                     + 0.39
                                3.00
                                          2.60                  (0.12)                                                                                    + 0.49          2.61
                                2.50
                                                                                                                                               + 0.56
                                2.00
                                                                                                          + 0.03
                                                                            (1.05)                                               + 0.03
                                1.50                                                        (0.20)
                                                                                                                       (0.12)

                                1.00


                                0.50


                                0.00
                                       Net Prof it    NII     Cor e Non-   Prof it on   Prof it on Ex.   Misc. inc   Employee   Ot her Exp.   Pr ovsng.    Tax         Net Prof it
                                         Q1'09                 int . Inc    Sale of        Tr ans                      Exp.                                              Q1' 10
                                                                             Invst .



                                        All Figures in Rs. Bn
                                        Note: Provisioning and Tax were lower for Q1’10, pulling up the profit.


                                        Growth in Term Deposits: CorpBank’s deposits decreased 2.5%
                                        sequentially to Rs. 721.3 bn, driven by a sharp fall in demand deposits,
                                        which fell from Rs. 131.7 bn to Rs. 63.7 bn. Although the overall deposit
                                        growth was negative, term deposits increased 9.0% to Rs. 552.9 bn. The
                                        stable nature of term deposits is likely to provide the Bank with
                                        opportunity to grow its balance-sheet in the near term.

                  Please see the end of the report for disclaimer and disclosures.                                                                               -3-
                                                                            CORPORATION BANK
                                                                                   RESEARCH
EQUITY RESEARCH                                                                                August 18, 2009

                                      Advances growth likely to inch-up: The Bank’s advances de-grew by
                                      2.3% qoq to Rs. 473.8 bn. This, we believe, was a result of the prevailing
                                      low credit demand. The Bank’s surplus liquidity was parked in
                                      investments, which increased 31.1% qoq to Rs. 326.9 bn. The Bank has
                                      recently raised Rs. 6.5 bn in Tier I and Tier II bonds in order to fund its
                                      advances growth. For FY10, we expect its advances to grow by ~20%.
                                      Growth beyond that might impact the Bank’s margins adversely.

                                      Margins likely to remain stable: The Bank’s margins improved by 7 bps
                                      sequentially to 2.26%. This was because of the average cost of funds
                                      declined faster (6.53% to 6.17%) than the average yield (8.72% to
                                      8.43%). The Bank has recently reduced its deposit rates across all
                                      maturities, which should lower its cost of deposits significantly. This
                                      move, we believe follows the lower interest rates that the Bank is able to
                                      charge on its advances, in order to grow at a fast pace/aggressively.
                                      Therefore, we expect the margin to remain largely stable.

                                      Asset quality remains a concern: Sequentially, the Bank’s gross NPAs
                                      increased 9.4% to Rs. 6.1 bn, pulling up the gross NPA ratio from 1.14%
                                      to 1.29%. Two-thirds of the Gross NPA as on 30th June 09, and 77% of
                                      the delinquencies during the quarter, pertained to priority sector. The
                                      Bank maintained its the coverage ratio at 75.4%, but the net NPAs
                                      increased 8.9% qoq to Rs. 1.5 bn, and the net NPA ratio increased by 3
                                      bps to 0.32%.
                                      Noteworthy is the fact that of the total amount restructured (Rs. 24.6bn)
                                      during the last 5 quarters, 56.6% (Rs. 13.6 bn, or 2.9% of current loan-
                                      book) were restructured during this quarter alone. Moreover, given the
                                      strain on agriculture and the economy, due to poor monsoon we do not
                                      expect the mounting delinquencies or restructuring to abate any time in
                                      the near-to-medium term. We estimate a base case gross NPA ratio of
                                      1.42% in the next quarter.

                                      Capital adequacy and return ratios: At the close of Q1’10, the Bank’s
                                      total capital adequacy ratio, as per Basel II, stood at a comfortable
                                      16.29% versus the regulatory minimum of 9%. Tier 1 capital adequacy
                                      was 9.63%.




                  Please see the end of the report for disclaimer and disclosures.                      -4-
                                                                             CORPORATION BANK
                                                                                    RESEARCH
EQUITY RESEARCH                                                                         August 18, 2009

                                      The Bank’s return on equity (ROE) for the quarter stood at 20.26%
                                      (annualised) and the return on average assets (ROAA) stood at 1.26%
                                      (annualised).

                                      The basic and diluted EPS increased from Rs.12.85 in Q1’09 to
                                      Rs. 18.21 on a non-annualised basis.




                  Please see the end of the report for disclaimer and disclosures.               -5-
                                                                                                               CORPORATION BANK
                                                                                                                      RESEARCH
 EQUITY RESEARCH                                                                                                                          August 18, 2009


Income Statement                                                             Key Ratios
(Rs mn, Yr. ending March 31)        FY08      FY09      FY10E       FY11E                                             FY08      FY09E         FY10E           FY11E

Interest Income                   45,166    60,673     77,229      92,287    Per share data (Rs.)

Interest Expense                  30,631    43,710     56,203      65,135    Shares outstanding (mn)                   143         143          143            143

Net Interest Income               14,535    16,963     21,026      27,152    Basic EPS                                 52.3       62.8          71.2           88.6

YoY Growth (%)                    11.1%     16.7%       24.0%       29.1%    Diluted EPS                               52.3       62.8          71.2           88.6

Other Income                       7,021    11,114     12,118      13,010    Book value per share                     294.8      341.4        388.7           450.5

Operating Income                  21,556    28,077     33,145      40,162    Adj. book value per share                294.8      341.4        388.7           450.5

YoY Growth (%)                    10.9%     30.3%       18.0%       21.2%

Operating Expense                  8,923    10,019     10,266      11,014    Valuation ratios (x)

Pre-Provisioning Profit           12,633    18,058     22,878      29,148    P/PPP                                     3.2x        3.0x          2.4x          1.9x

Provisions and Contingencies       1,857     4,104      7,498       9,592    P/E                                       5.4x        6.1x          5.3x          4.3x

Profit Before Tax                 10,776    13,954     15,380      19,556    P/B                                       1.0x        1.1x          1.0x          0.8x

Tax                                3,272     4,951      5,174       6,845    P/ABV                                     1.0x        1.1x          1.0x          0.8x

Net Profit                         7,504     9,003     10,206      12,712

YoY Growth (%)                    40.0%     20.0%       13.4%       24.6%    Performance ratio (%)

                                                                             Return on avg. assets                     1.3%       1.2%          1.0%           1.1%

Balance Sheet                                                                Return on avg. net worth                 18.8%      19.7%        19.5%           21.1%

(Rs mn, as on March 31)             FY08      FY09      FY10E       FY11E

Cash and balances with RBI        89,159   105,397     99,236     118,730    Balance Sheet ratios (%)

Investments                      165,124   249,378    406,414     459,149    Advances to deposits                     70.7%      65.6%        66.0%           66.0%

YoY Growth (%)                    14.5%     51.0%       63.0%       13.0%    Borrowings to advances                    5.5%       4.3%        12.9%           12.3%

Advances                         391,856   485,122    583,293     689,101    Investments to assets                    24.8%      28.7%        36.8%           35.8%

YoY Growth (%)                    30.8%     23.8%       20.2%       18.1%    Investments to deposits                  29.8%      33.7%        46.0%           44.0%

Fixed Assets (Net)                 2,718     2,989      2,996       3,002    Net Worth to assets                       6.3%       5.6%          5.1%           5.0%

Other Assets                      17,121    26,173     11,030      12,828

Total Assets                     665,977   869,058   1,102,969   1,282,809   Productivity ratio (Rs. mn)

                                                                             Opt. expense per employee                  0.7        0.9           0.8            0.7

Deposits                         554,244   739,839    883,510    1,043,520   Net profit per employee                    0.6        0.8           0.8            0.8

YoY Growth (%)                    30.9%     33.5%       19.4%       18.1%    Asset per employee                        55.4       74.4          83.8           85.7

Borrowings                        21,376    20,724     75,472      84,880

YoY Growth (%)                    -29.2%     -3.1%     264.2%       12.5%    Operating ratios (%)

Other Liabilities & Provisions    48,071    59,530     88,238      89,797    Operating cost to operating income       41.4%      35.7%        31.0%           27.4%

Total Liabilities                623,692   820,093   1,047,219   1,218,196   Operating cost to avg. assets             1.5%       1.3%          1.0%           0.9%



Share Capital                      1,434     1,434      1,434       1,434    Source: Bank data, Indiabulls research

Reserves & Surplus                40,851    47,531     54,316      63,178    Note: Some ratios are as per Indiabulls definitions and may not match

Total Equity & Liabilities       665,977   869,058   1,102,969   1,282,809   figures declared by the Bank




                                 Please see the end of the report for disclaimer and disclosures.                                                       -6-
                                                                                           CORPORATION BANK
                                                                                                  RESEARCH
 EQUITY RESEARCH                                                                                              August 18, 2009

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