Stock Outlook & Returns
The Central Bank of India’s stock last traded at Rs 28.15 apiece on NSE, gaining 6.83% as compared to its previous close. The stock is trading near its 52 week high, 2.26% down. It recorded its 52-week high on 7 December 2022 at Rs 28.80. Its 52-week low was recorded on 1 July 2022 at Rs 16.25.
The stock in the past 1 week has given 14.66% positive returns. It has given 24.56% positive returns in 1 month and 37.99% positive returns in 3 months, respectively. In 6 months, it gave 55.96% positive return. In the past 1 year, it has given 30.02% positive returns. In the past 3 years, it has given 42.89% positive returns In the past 5 years, it has given 64.14% negative returns.
Asset quality improvement continues
The absolute GNPA is decreasing gradually with lower slippages and higher recoveries. In previous quarter, slippages dropped sharply to Rs7.7bn (v/s Rs20.4b in 1QFY23) while higher recoveries and upgrades along with robust loan growth aided 520bp/90bp decline in the GNPA/NNPA ratios, respectively. PCR (Inc. TWO) improved 260bps sequentially to 89.2%. Total SMA overdue (1/2) are improving and dipped to 3.3% from 4.9% in 2QFY22. Further, the bank’s restructured book (4%) is at par with peers and declining gradually. Factoring higher recoveries, we estimate the GNPA/ NNPA ratio at 8.9%/2.5% at the end of FY23 with a stable PCR (calculated) of 74%.
Business growth on track; margin improving
On the business front, the bank has been reporting consistent credit growth with improving CD ratio. Recent quarter reported a sharp 18% YoY and 6.2% sequential growth in loan book driven by the RAM segment (67.5% of loan book) and guided for double-digit advances growth. The surplus SLR (30% of deposit) against the regulatory requirement of 18% may provide additional resources for lending.
Buy for a target price of Rs 37/share
After incurring losses for six consecutive years (FY16-FY21), Central Bank returned to profitability in FY22. Furthermore, the bank has been reporting consistent growth in net profit since last six quarters. A bulky provision (Rs30.8bn) made in 4QFY21, continued to safeguard the balance sheet with PCR (calculated) of 72% and PCR (including TWO) of 89%. The bank’s margin (3.4% in the 2QFY23) is in upward trajectory with continuous improvement in CD ratio. On the business front, the bank has been reporting stable credit growth (18.1% YoY and 6.3% sequential jump seen in previous quarter) across segments. The bank’s recoveries are in line with the guidance and we expect the credit cost to be below 1.5% for FY23E. Moreover, the bank has raised capital in FY22 which resulted in the CET -1 of 11.6% (at par). We believe the asset quality hurdles are behind and the bank shall witness gradual improvement in profitability with FY23E ROA/ROE of 0.5%/6.6%. With inexpensive valuation (0.8x PBVPS) we recommend BUY.
Disclaimer
The stock has been picked from the brokerage report of LKP Research. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.
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