Share Market Update on Central Bank of India for 1QFY2012 with a Neutral recommendation.
For 1QFY2012, Central Bank of
India posted a 16.6% yoy decline in its net profit primarily due to higher
provisions. However, results were above our estimates on lower-than-estimated
operating expenses. A sharp sequential dip in NIM and high slippages despite
the pending switchover to system-based NPA platform were the key highlights of
the results. We maintain our Neutral view on the stock.
NIM
dips on lower yield on investments; slippages remain elevated: The bank’s business momentum
slowed during the usually lean quarter. Advances declined by 2.8% qoq (up 17.2%
yoy) and deposits increased by 3.6% qoq (up 20.3% yoy). CASA deposits growth
moderated to 14.7% yoy, resulting in a 259bp qoq decline in CASA ratio to
32.6%. Bulk deposits and CDs constituted a relatively higher ~33% of total
deposits. The reduction in CASA ratio and the higher interest rate environment
resulted in a sharp 72bp qoq rise in cost of deposits to 6.8%. The yield on
advances went up by 77bp qoq to 11.4%. Reported NIM declined sharply by 48bp
qoq to 3.0% primarily due to fall in yield on investments (fall of 73bp qoq).
The sequential decline in NIM was exacerbated by the benefit of interest on
income tax refund of ~`130cr in 4QFY2011. Overall asset quality of the bank
deteriorated during the quarter, with annualised slippage ratio remaining
elevated at 1.8% (1.1% in 1QFY2011) and net NPAs rising by 27.7% qoq. Slippages
remained elevated at 1.8% as compared to 1.1% in 1QFY2011. Provision coverage
ratio including technical write-offs declined to 65.2% from 67.6% in 4QFY2011.
The bank is yet to switchover to the system-based NPA recognition platform,
which could result in a substantial rise in slippages given the bank’s rural
branches (37%) and a relatively large agri (16%) portfolio.
Outlook and valuation: At the CMP, the stock is trading at cheap valuations of 0.8x
FY2013E ABV compared to its trading range of 0.5–1.5x with a median of 1.1x
since listing in 2007. However, due to near-term asset-quality concerns because
of system-based NPA recognition, we remain Neutral on the stock.
