United States

Analyst Research Report Snapshot


Spark Capital: Corporation Bank 4QFY14 Result Review - Capital constraint compounds asset quality concerns: Maintain SELL [TP: 216]




Spark Capital Advisors(India) Private Limited


13 May 2014





Companies referenced:


Available for Immediate Download

Corporation Bank 4QFY14 Result Review - Capital constraint compounds asset quality concerns: Maintain SELL [TP: 216] Corporation bank’s (CRPBK) 4QFY14 performance was marked by continuing asset quality stresses, with incremental slippages of 3.4% (annualised) translating into a 131% yoy rise in GNPAs. The overall stock of restructuring currently stands at 5.0% of the book; the restructured book has risen 2x since 2QFY12 while slippages on the 2QFY12 book are only 11% - an outlier given the 30-40% slippage numbers reported by larger peers. Incremental restructuring amounted to Rs.6bn, translating into stressed asset formation of 5.2%, comparable to 6% witnessed in 3QFY14. Additionally, risky sector exposures have risen to 27% of the book against 24% in 1QFY13 with exposure to power rising to 9% of the book. PSL lending currently stands at 41% of ANBC and notwithstanding a 30% yoy rise in agri loans, agri continues to amount to only 11 % of ANBC - much below the mandated 18%; we expect both NIMs and asset quality to remain under pressure as these loans takeoff. Opex was up 14% yoy, while pension liabilities are likely to be challenging in a wage revision year as CRPBK’s skewed rate of return on plan assets (9% against 8% for most PSU banks) could mean a two-fold impact on costs, a key risk in our view. CRPBK’s low T1 capital (at 8.1%) would necessitate repeated infusions of capital as the transition to BASEL 3 begins, we estimate a capital requirement of ~Rs.15bn every year over FY15-18 to support a 20% growth in RWAs (refer our note on PSU banks dated Mar 21, 2014). We also note a sharp spike in loans to iron and steel (up 16% yoy), gems & jewellery (up 29% yoy) and textiles (up 18% yoy), adding to concerns of a 27% yoy growth in SME loans. Despite the strong business growth, core fee income was only up 4% yoy and we estimate an other income to assets ratio of 0.8% for FY15/16. With multiple headwinds continuing in the form of asset quality pressures, margins, capital, costs and profitability we maintain our SELL rating with a target price of Rs. 216, 0.8x our stress case FY15E ABV.

Why buy analyst research?

  • Institutional quality research
  • Available for Immediate Download
  • Detailed company or industry insight
  • Print or save
  • 24 hour customer support
Return to previous page without adding this item to your cart.
Email Customer Support.

About Analyst Research

Analyst research reports are available for immediate download after purchase. You will have unlimited access to the report for 24 hours after purchase, to download, print or save it as many times as you wish. Analyst Research provided by Reuters does not constitute investment advice, and is not endorsed by Reuters Research. This information is protected by copyright and intellectual property laws. More information on Analyst Research.