Stable performance; NIMs still remain low
ACCUMULATE
CMP: Rs 420 Target Price: Rs 430
Corporation Bank (Corp Bank) reported a net profit of Rs2.9bn in line with our estimates led by strong growth in NII and other income. NII grew by 23.8% to Rs5.0bn led by 20.7% yoy growth in advances. Operating profit grew by a higher 52.4% yoy to Rs5.4bn supported by treasury gains and fee income.
The asset quality remained stable as the gross NPAs stood flat at Rs6.2bn (Rs6.1bn in Q1FY10) and the provision cover at 75.4%
While the operating performance was encouraging for the quarter, what worries us in significantly low CASA, which will keep pressure on the NIMs. We believe that NIMs will under more pressure in H2FY10 as bank widens its retail liability franchise. At the current valuations, the stock is quoting at 1.3x FY10E ABV and 1.1x FY11E ABV. We believe that the RoEs will be more volatile in coming quarters driven by pressure on NIMs. We maintain our ACCUMULATE rating on the stock with a price target of Rs430.
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