The Bank reported a 37% increase in net profit on y-o-y basis in Q4 and 37% y-o-y in FY08. Both deposits and advances grew at a healthy 31% during the year.
Healthy growth in profits was accompanied by higher ROE at 17.4% (vs.14.2% in FY07). While priority sector lending drove increase in the loan book, Corporation Bank seems to have managed its risks well. Fresh delinquencies witnessed a sharp fall and led to an improvement in Gross NPAs over the last year - underscoring bank’s strong risk management processes.
The Bank is aggressively expanding its retail operations. During the year, it added 10 lakh new accounts, 80 branches and 28 ATMs. It plans to set up another 100 branches and 175 ATMs in FY09 and has announced plans to aggressively cross-sell financial products. We expect this will improve both core and non-core income.
We have valued Corporation Bank by using the Gordon Growth Model. Assuming a sustainable ROE of 15%, we have arrived at a P/B multiple of 1.34x, which leads to a target price of Rs467 for FY09.
At the current price of Rs313, the stock is trading at a forward P/B of 0.9x for FY09. We maintain our BUY rating on the stock.