During 4QFY2011, Central Bank of India’s profitability was marred by employee benefit-related provisioning expenses; however, NIM was sequentially stable (mainly aided by interest on income tax refund of `131cr). Profits were also supported by the write-back of excess tax provisions (`108cr) during 4QFY2011. We recommend a Neutral view on the stock.
Healthy business growth with stable NIM, but slippages rise substantially: Business momentum during 4QFY2011 was healthy, with advances and deposits growing by 11.5% qoq (23.1% yoy) and 10.0% qoq (10.6% yoy), respectively. Saving deposits were almost flat sequentially; on a yoy basis, their growth moderated to 16.9% from 24.0% in 3QFY2011. Due to year-end surge in current account deposits, the bank was able to sustain its reported CASA ratio above 35%. Reported NIM was stable sequentially at 3.47%, partly aided by interest income of `131cr on income tax refund. Yield on investments rose sharply by 63bp qoq, while yield on advances increased by 13bp qoq. Bulk deposits and certificate of deposits (CDs) constituted ~17.4% of the total deposits. Additional employee benefit-related liabilities of `865cr (`570cr towards retired employees and `295cr towards one-fifth amortisation for serving employees) marred the profitability in FY2011. Slippages rose substantially during the quarter, partly due to some chunky accounts from the construction and biotech sector. However, aggressive write-offs resulted in a 12.1% qoq decline in gross NPAs. Provision coverage ratio including technical write-offs declined to 67.6% from 70.3% in 3QFY2011.
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 concerns on asset quality due to system-based NPA recognition, we recommend Neutral on the stock.
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