Started about 105 years ago in 1906, with an initial capital of just Rs. 5000, Corporation Bank has recorded Rs. 2,00,000-crore mark in business. This is a safe investment with good prospects for appreciation. Just consider:
Corporation Bank, a public sector bank, was the forerunner when it came to evolving and adapting to the financial sector reforms. In 1997, it became the secondp public sector bank in the country to enter capital market, and the IPO 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 per cent CBS compliance and, more recently, Business Correspondent model of low-cost branchless banking to take banking to remote villages.
The bank has been paying dividends without interruption since its inception. The rate was 200 per cent for 2010-11.
For the half year ended September 2011, the net profit rose by 10 per cent to Rs. 752.56 crore on the back of a 12 per cent rise in the net total income to Rs. 2139.58 crore. Gross advances grew by 17 per cent to Rs. 81,633.9 crore and deposits by 24.4 per cent to Rs. 120,613 crore as on 30 September 2011.
However, in view of its exposure to the corporate sector, the bank has been hit by the economic slowdown and margin pressure on corporates which has impacted its asset quality. With more and more companies unable to service their loans, the gross NPAs jumped by 45.9 per cent y-o-y to Rs. 1079.98 crore, whereas net NPAs shot up by 176.4 per cent to Rs. 745.01 crore. As a result of the surge in loans turning bad, the proportion of gross NPAs as per centage of total advances increased to 1.32 per cent from 1.05 per cent a year ago and that of net NPAs to 0.91 per cent from 0.39 per cent. The capital risk-weighted adequacy ratio also declined to 13.58 per cent from 14.48 per cent a year ago. The provision coverage ratio, however, improved to 84.72 per cent against 78.51 per cent.
However, the Book Value per share has shot up to Rs. 532.67 as on 30 September against Rs. Rs. 450.39 a year ago. At the current price of Rs. 344, P/BV works out to just 0.67. Even if one deducts the entire net NPAs and 25 per cent of restructured assets, adjusted book value works out to Rs. 418 and at current price, P/adjusted BV is just 0.9.
In 2011-12, we expect the bank to register an EPS of Rs. 99.1. The share trades at Rs. 344. P/E works out to just 3.5. In view of the difficult phase for banking, the price may decline to around Rs. 300. The shares are worth buying at every decline.
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