>CORPORATION BANK LIMITED (VENTURA)

Corporation Bank is one of the major banks of south India with a diversified business mix of 133,456 crore and 100% network connectivity of its core banking. Recently it was ranked as the Best Bank by Asset Quality by the Business Today – KPMG study and has also won awards for the “Use of technology for financial inclusion”

Key Highlights
■ Robust credit growth and operational efficiencies to boost profitability:
Corporation Bank’s projected credit growth at 20-22% over the period FY2010- 2011 is superior to the projected industry growth of 16-18%.This coupled with its superior operational efficiencies in terms of costs should help the bank boost its profitability.

■ Bank’s asset quality and capital adequacy is the highest amongst peers: Prudent lending and conservative provisioning policies have helped the Bank maintain high asset quality despite its large exposure to the retail and SME sectors. Its gross and net NPLs at 1.18% and 0.29% are one of the lowest whereas its capital adequacy of 18.2% is the highest in the industry. Though restructured loans are up substantially from 0.3% to 2.1%, they are still one of the lowest amongst peers. We further forecast that the worst case stress impact (assuming 100% write off) of these restructured loans at only 18% of FY2011 book value.

■ Fee income continues to remain buoyant: Corporation Bank’s fee based income continues to demonstrate robust growth at a time when most public and private banks have seen a slowdown. This growth in fee income is from its core lending business and hence we do not expect any slowdown in the fee receipts over the period FY2010-2011.

■ Valuation and Recommendation: We are initiating coverage with a BUY recommendation on Corporation Bank and assign a price objective of Rs 632 for FY2011, based on our blended valuation methodology, representing an upside of 39% from current levels over a 18-month horizon. At the CMP of Rs 455, the stock is trading at 1.0x Adj BV and a forward PE multiple of 5.1x for FY2011 respectively.

To read the full report: CORPORATION BANK