CORPORATION BANK

Result Update: Q2 FY13

BUY
Stock Data

CMP Target Price

396.00 439.00 Nov 16th, 2012

SYNOPSIS
Corporation Bank is oldest nationalized Bank with rich experience in extending various banking solutions to its valued customers & clients since 1906. During the quarter, the Bank opened 47 Branches across the country. Banks Capital Adequacy Ratio registered at 12.19% as on 30.09.12. The total business increased by Rs.396520 million with a growth rate of 19.61% on yo-y basis. CASA of the Bank increased to Rs.300620 mn as at 30.09.12 from Rs.263060 mn as on 30.09.11 recording a growth of 21% on y-o-y basis. The bank has planned to open 300 new branches during the financial year to make national presence. Corporation Bank has been awarded as the Safest Banker by The Sunday Standard FINWIZ 2012 Best Bankers Award. Net Income and PAT of the company are expected to grow at a CAGR of 27% and 7% over 2011 to 2014E respectively.

Sector Banking BSE Code 532179 Face Value / Div. Per Share 10.00 52wk. High / Low (Rs.) 528.45/335.50 Volume (2wk. Avg ) 19780.00 Market Cap ( Rs in mn ) 55400.24 Annual Estimated Results (A*: Actual / E*: Estimated)

Years
Net Income NII Net Profit EPS

FY12A 130177.84 46395.18 15060.43 101.67 3.68

FY13E

FY14E

P/E Shareholding Pattern (%)

162722.30 187130.65 53255.22 59589.98 16024.98 17310.34 108.18 116.86 3.46 3.20

1 Year Comparative Graph

BSE SENSEX

CORPORATION BANK

Source: Company Data, Firstcall Research

Peer Groups
Company Name

CMP (Rs.)

Market Cap Rs. in mn.

EPS (Rs.)

P/E (x) Ratio

P/BV(x) Ratio

Dividend (%)

Corporation Bank ICICI Bank Axis Bank SBI

396.00 1048.00 1236.05 2163.00

55400.24 1209002.50 529097.20 1451134.50

101.67 64.18 109.11 219.40

3.68 16.34 11.36 9.86

0.67 2.00 2.32 1.73

205.00 165.00 160.00 350.00

Investment Highlights Results updates- Q2 FY13, The companys net profit jumps to Rs. 4057.11 million as against Rs. 4011.11 million in the corresponding quarter ending of previous year, an increase of 1.15%. Revenue for the quarter rose 21.15% to Rs. 37444.80 million from Rs. 30907.42 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs. 27.39 a share during the quarter, registering 1.15% an increase over previous year period. Net Interest Income is Rs. 11292.14 millions as against Rs. 11423.28 millions in the corresponding period of the previous year.

Months Net Income PAT EPS

Sep-12 37444.80 4057.11 27.39

Sep-11 30907.42 4011.11 27.08

% Change 21.15% 1.15% 1.15%

Segment Revenue Particulars (Rs.mn.) Wholesale Banking Treasury Operations Retailing Banking Other Banking Operations Total Q2 FY13 21928.90 9027.50 8762.40 985.70 40704.50

Latest Updates The total business increased byRs.396520 million with a growth rate of 19.61% on y-o-y basis. During the quarter, the Bank opened 47 Branches across the country. Corporation Bank has facilitated Online Opening of Deposits to its Retail and Corporate Customers through CorpNet Internet Banking Platform. CASA of the Bank increased to Rs.300620 million as at 30.09.12 from Rs.263060 million as on 30.09.11 recording a growth of 21% on y-o-y basis. Advances of the bank increased to Rs.981610 million as at 30.09.12 from Rs.816340 million as on 30.09.11 recording a growth of 20.25% on y-o-y basis. The Banks network has spread across 6427 functional Units spread across 26 States and 3 Union territories. The Bank has 2 representative offices at Dubai & Hong Kong. The bank has planned to open 300 new branches during the financial year to make national presence. 1601 Branches, 1281 ATMs & 3545 Branchless Banking Units as at 30.09.2012 Bank is actively participating in Electronic Benefit Transfer (EBT) programme in the States of Andhra Pradesh; Haryana & Karnataka wherein a total number of 28.20 lakh transactions involving an amount of Rs.1232.2 million have been put through during half year ended 30.09.2012. The Bank has facilitated Online Opening of Deposits to its Retail and Corporate Customers through CorpNet Internet Banking Platform. The Bank has developed applications for I-Pad and Android tablets, which provide latest information, updates, interest rates and other relevant information for the users. The Bank has enabled Internet Banking through this application for personal banking. Corporation Bank has been awarded as the Safest Banker by The Sunday Standard FINWIZ 2012 Best Bankers Award. Corporation Bank Bags Best Mid Size Public Sector Bank (Commendation) Award at India Best Banks and Financial Institutions Awards 2012 by CNBC-TV18 & MCX Stock Exchange (MCX-SX).

Company Profile
Started about 107 years ago in 1906, with an initial capital of just Rs.5000/-, Corporation Bank has recorded Rs. 2,36,611 Crore mark in business and even far more, with over 6427 service outlets across the nation, served by committed and dedicated 13,000 plus Corp Bankers. It has many reasons to cheer; predominant of them is, being able to participate in nation building by empowering the rural and urban population alike. Nationalised in 1980, Corporation Bank was the forerunner when it came to evolving and adapting to the financial sector reforms. In 1997, it became the Second Public Sector Bank in the country to enter capital market, the IPO of which was over- subscribed by 13 times. The Bank has many "firsts" to its credit - Cash Management Services, Gold Banking, m-Commerce, "Online" approvals for Educational loans, 100% CBS Compliance and more recently, its pioneering efforts to take the technology to the rural masses in remotest villages through low-cost branchless banking - Business Correspondent model. All of which symbolize Bank's answered commitment to its customers to provide convenience banking. The Bank has developed applications for I-Pad and Android tablets, which provide latest information, updates, interest rates and other relevant information for the users. The Bank has enabled Internet Banking through this application for personal banking. The Banks network has spread across 6427 functional Units spread across 26 States and 3 Union territories. The Bank has 2 representative offices at Dubai & Hong Kong. The bank owns 1601 Branches, 1281 ATMs & 3545 Branchless Banking Units as at 30.09.2012 Services offered Personal Banking- Under this, it offers various products and services such saving account, loans, deposits, ATM facility, RTGS/NEFT facility, internet banking, demat services, etc. NRI Banking- Besides various personal banking products, it also offers remittance services, consultancy services to its NRI Clients. Cards- Corporation Bank offers Corp Convenience International Debit Card, Credit Card and Corp Travel Card. Corporate- To corporate, it offers various products and services such as corporate accounts, term finance, working capital loans, RTGS, NEFT, CMS, Priority and SME- It also caters products and services to Priority and SME segment such as providing various kinds of products to meet their various business requirements.

Financial Highlight
Balance sheet as on March 31, 2012 (A*- Actual, E* -Estimations & Rs. In Millions) FY11 FY12 FY13E FY14E CAPITAL AND LIABILITIES Capital 1481.30 1481.29 1481.29 1481.29 Reserves and Surplus 69896.78 81277.96 97302.94 114613.28 Deposits 1167474.98 1361422.00 1571080.99 1795745.57 Borrowings 159653.81 142480.97 146755.40 149690.51 Other Liabilities and Provisions 36579.05 48941.98 58730.38 69301.84 Total 1435085.92 1635604.20 1875350.99 2130832.49 ASSETS Cash and Balances with Reserve Bank of India 81423.16 92882.34 104957.04 117551.89 Balances with Banks and Money at Call and Short notice 22501.91 24097.60 26025.41 27847.19 Investments 434527.42 474746.30 522220.93 574443.02 Advances 868504.04 1004690.20 1169459.39 1343447.95 Fixed Assets 3289.69 3559.77 3808.95 3999.40 Other Assets 24839.70 35627.99 48879.26 63543.04 Total 1435085.92 1635604.20 1875350.99 2130832.49

Annual Profit & Loss Statement for the period from 2011 to 2014E Value(Rs.in.mn) Description Net Income Other Income Total income Interest Expended Net Interest Income Operating Expenses Operating Profit Provisions and Contingencies Profit Before Tax Tax Profit After Tax Equity Capital Reserves Face Value (Rs.) EPS FY11 12m 91352.48 13243.70 104596.18 -61955.05 42641.13 -16417.10 26224.03 -6887.65 19336.38 -5203.70 14132.68 1481.31 69896.78 10.00 95.41 FY12 12m 130177.84 14926.19 145104.03 -98708.85 46395.18 -17835.50 28559.68 -9504.55 19055.13 -3994.70 15060.43 1481.29 81277.96 10.00 101.67 FY13E 12m 162722.30 16642.70 179365.00 -126109.78 53255.22 -21153.90 32101.32 -11556.48 20544.85 -4519.87 16024.98 1481.29 97302.94 10.00 108.18 FY 14E 12m 187130.65 18140.55 205271.19 -145681.21 59589.98 -24888.38 34701.61 -12423.18 22278.43 -4968.09 17310.34 1481.29 114613.28 10.00 116.86

Quarterly Profit & Loss Statement for the period from 31 Mar 2012 to 31 Dec 2012E Value(Rs.in.mn) Description Net Income Other Income Total income Interest Expended Net Interest Income Operating Expenses Operating Profit Provisions and Contingencies Profit Before Tax Tax Profit After Tax Equity Capital Face Value (Rs.) EPS 31-Mar-12 3m 35858.77 4233.02 40091.79 -27519.47 12572.32 -4429.75 8142.57 -3377.15 4765.42 -1252.80 3512.62 1481.29 10.00 23.71 30-Jun-12 3m 36506.22 3276.13 39782.35 -28421.92 11360.43 -4661.83 6698.60 -2166.01 4532.59 -830.00 3702.59 1481.29 10.00 25.00 30-Sep-12 3m 37444.80 3259.66 40704.46 -29412.32 11292.14 -4434.63 6857.51 -2688.19 4169.32 -112.21 4057.11 1481.29 10.00 27.39 31-Dec-12E 3m 40215.72 3683.42 43899.13 -31098.81 12800.32 -4906.32 7894.00 -2976.04 4917.96 -786.87 4131.09 1481.29 10.00 27.89

Ratio Analysis Particulars EPS (Rs.) Operating Profit Margin (%) PAT Margin (%) P/E Ratio (x) ROE (%) ROCE (%) Debt-Equity Ratio Book Value (Rs.) P/BV (x) FY11 95.41 28.71% 15.47% 3.92 19.80% 1.18% 30.19 481.86 0.78 FY12 101.67 21.94% 11.57% 3.68 18.20% 1.09% 30.71 558.70 0.67 FY13E 108.18 19.73% 9.85% 3.46 16.22% 1.06% 29.59 666.88 0.56 FY14E 116.86 18.54% 9.25% 3.20 14.91% 1.00% 28.95 783.74 0.48

Charts

Outlook and Conclusion At the current market price of Rs.396.00, the stock P/E ratio is at 3.46 x FY13E and 3.20 x FY14E respectively. Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs. 108.18 and Rs.116.86 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 27% and 7% over 2011 to 2014E respectively. On the basis of Debt-Equity Ratio, the stock trades at 29.59 x for FY13E and 28.95 x for FY14E. Price to Book Value of the stock is expected to be at 0.56 x and 0.48 x for FY13E and FY14E respectively. We expect that the company will keep its growth story in the coming quarters also. We recommend BUY in this particular scrip with a target price of Rs. 439.00 for Medium to Long term investment.

Industry Overview India has a robust banking system, governed by stringent regulations. An intense supervision by the Reserve Bank of India (RBI) has resulted in stringent regulatory and compliance requirements on capital adequacy and risk management practices which have strengthened the overall banking system in India. Indias banking sector includes 86 scheduled commercial banks, 82 regional rural banks, 1,645 urban cooperative banks (53 scheduled cooperative banks) and 95,765 rural cooperative banks. Key Statistics

According to RBIs Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks, December 2011, Nationalised Banks, as a group, accounted for 52.1 per cent of the aggregate deposits, while State Bank of India (SBI) and its associates accounted for 21.9 per cent. The share of New Private Sector Banks, Old Private Sector Banks, Foreign Banks, and Regional Rural Banks in aggregate deposits was 13.9 per cent, .8 per cent, 4.5 per cent and 2.9 per cent, respectively.

Nationalised Banks also held the highest share of 51.2 per cent in the total bank credit followed by SBI and its associates at 22.5 per cent and New Private Sector Banks at 13.8 per cent. Foreign Banks, Old Private Sector Banks and Regional Rural Banks had shares of around 5.2 per cent, 4.8 per cent and 2.5 per cent, respectively.

Another statement released by RBI revealed that banks' advances grew 0.1 per cent to US$ 913 billion in JulySeptember 2012, while deposits expanded by 1 per cent. The RBI projects credit growth at 17 per cent and deposit growth at 16 per cent in 2012-13.

Foreign exchange reserves stood at US$ 294.81 billion for the week ended September 28, 2012 wherein the value of gold reserves was recorded at US$ 28.133 billion and that of foreign currency assets (FCAs) was at US$ 259.96 billion.

Recent Developments

Export-Import Bank of India (Exim Bank) has partnered with IL&FS Financial Services (IFIN) to facilitate accessibility to Indian companies for CNH bond markets as well as other international bond markets which are not dominated in US Dollar, Euro and Yen. The memorandum of understanding (MoU) gives broad clauses of co-operation between the two entities on a bond guarantee facility programme which will facilitate a credit enhancement mechanism to Indian bond issuers in international bond markets.

Working further on its innovation finance programme for the micro, small and medium enterprises (MSME) sector, Small Industries Development Bank of India (SIDBI) has entered into a EUR 53 million (US$ 68.53 million) - loan agreement with KFW Germany. SIDBI aims to promote entrepreneurial innovations in MSME sector, particularly those involved in clean technologies. The scheme also aims to provide financing instruments specially customised to the needs of the MSMEs.

Indias second largest private bank HDFC Bank has opened its first representative office in Abu Dhabi to render financial services to a large customer base of non-resident Indians (NRIs) staying in the UAE. The new office will help NRIs open accounts in India and will also offer remittance services, fixed deposits and other related banking services.

IDBI Bank has received internationally recognised BS 25999 certificate from Intertek India, a global certification agency. The bank has become Indias first public sector bank to get certified for its business continuity management (BCM) process, for comprehensive coverage of major business and support functions. The honour clearly authenticates banks dedication towards customer satisfaction, quality of services, better performance and regulatory compliance.

The State Bank of Bikaner & Jaipur (SBBJ) has opened a unique and first-of-its kind financial supermarket in the city. The branch, which will not be a conventional one, will offer a wide range of diversified products and services. It will primarily aim at cross-selling by offering non-standard products such as insurance (both life and general), credit card and mutual funds. The supermarket will sell products of its channel partners namely SBI Life, Mutual Fund, SBI General and SBI Card, both across the counters and through electronic means.

Indias third largest private bank Axis Bank has entered into a strategic agreement with Tata AIG General Insurance wherein the latter would be its corporate agent for general insurance. Tata AIG will leverage on banks wide distribution network to offer general insurance solutions to its clients. This initiative by Axis Bank aimed at broadening insurance cover options while offering Tata AIGs proclaimed Customer and Claims service to its' customers across the country.

Government Initiatives In order to speed up the process of financial inclusion in India, the RBI has announced setting up of a high-level committee that would ensure accessible financial services in the country. The Financial Inclusion Advisory Committee, to work under RBI Deputy Governor K C Chakrabarty, would formulate suitable regulatory framework to align the twin objectives of financial inclusion and financial stability. The 11-member panel is expected to acknowledge issues such as developing feasible and sustainable banking services delivery models and devising products and processes for rural as well as urban consumers outside the banking network. About 58.7 per cent households are reported to be availing banking facilities, as per 2011 census.

Road Ahead Indian banking industry is anticipated to grow exponentially and become the worlds third largest in asset size (projected at US$ 28,500 billion from the current US$ 1,350 billion) by 2025, according to a report by the Boston Consulting Group (BCG) India, prepared in association with a leading industry organisation and Indian Banks Associations (IBA). Driven by 3G and smartphones, mobiles would emerge as the most preferred mediums for banking wherein they will account for almost 20-30 per cent of the transactions.

Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of its affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision.

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