Citigroup just a while ago upgraded Corporation Bank to a BUY and also revised its target price upwards to Rs 455 from Rs 379. The reason for the upgrade is the solid performance in Q1-08; profits are up 23% – well ahead of 3% growth expectations. Balance-sheet driven NII expansion, fee growth and reduced bond portfolio charges (sharp base effect) drive profits up 23%.
Management foresees about 20% growth, which should alleviate recent funding pressures and support its above-industry capital cushion. Corp Bank is expected to report a fully diluted EPS of Rs 45.53 and Rs 55.44 for FY2008 and FY2009 respectively.
EVA-based target price of Rs455 is premised on a risk free rate of 8%, industry average margins of 230bps and higher than industry long-term capital ratio of 6.5% vs 6% average. Citi is also benchmarking target price on a 1.3x FY09E P/BV multiple (FY08E earlier), which is in-line with industry average target multiple.