Corporation Bank has reported a healthy set of numbers for Q1FY2010, well ahead of our estimates (both at top line and bottom line fronts), led by robust treasury gains, stable margins and healthy business growth during the quarter.
The bank reported a net profit Rs261.3 crore, up by 41.8% year-on-year (y-o-y), which is well ahead of our expectations.
The net interest income came in at Rs467.5 crore, up by 23.7% y-o-y and 9.2% quarter on quarter (q-o-q) on account of healthy 21.6% y-o-y advances growth coupled with stable net interest margin at 2.26% (reported), up marginally by 7 basis points q-o-q.
The non-interest income increased staggering 128% y-o-y to Rs359.3 crore mainly driven by strong treasury gains during the quarter.
The bank recorded treasury gains of Rs185.4 crore in the quarter, a stupendous 46 times higher than that of Rs4.5 crore in Q1FY2009. Furthermore, leveraging of strong technology platform and better pricing of banking services resulted in a robust 38.3% y-o-y growth in core fee income.
The operating expenses grew by 19.1% y-o-y and 3.6% q-o-q to Rs255.6 crore led by 23.4% y-o-y and 11.6% sequential increase in staff expenses. Meanwhile the other operating expenses grew by 15.8% y-o-y.
During the quarter, the bank restructured loans worth Rs1,362.6 crore, slightly higher compared with Rs1,280.3 crore worth pending applications for restructuring as on March 31, 2009.
The total restructured assets now stand at 5.1% of the total outstanding loans, which is largely in line with the quantum of restructuring done by its peers.
As on June 30, 2009, the bank remains well capitalised as its capital adequacy ratio (CAR) improved to 16.29% (as per Basel II), with a tier-I ratio of 9.63%.
Corporation Bank by far has the best capital adequacy among its peers and a strong tier-I ratio leaves the bank with ample headroom to raise tier-II capital.
We have revised our earnings estimates upwards for FY2010 and FY2011 by 8.4% and 4.9% respectively to factor in robust treasury gains, strong core fee income growth and higher-than-expected business growth.
At the current market price of Rs368, the stock trades at 5.2x FY2011E earnings per share (EPS), 2.5x FY2011E pre-provisioning profit (PPP) per share and 0.9x FY2011E adjusted book value (ABV) per share.
We maintain our BUY recommendation on the stock with revised price target of Rs438.