Central Bk will be able to maintain momentum

Research By : P Lilladher

The public sector institution, the Central Bank of India is open for subscription with an initial public offering (IPO) of 80,000,000 equity shares of Rs 10 each for cash at a price to be decided through a 100% book building process. The price band for the issue is between Rs 85 per equity share and Rs 102 per equity share. After the issue, the shareholding of the Government of India in the bank will come down to 80.20%.

Prabhudas Lilladher report on Central Bank of India IPO

Turnaround with backing of size
Central Bank of India is the third biggest bank in India in terms of branch network with 3194 branches and 267 ex. Counters. It was founded on December 21, 1911 and got nationalized in 1969. Govt of India holds 100% stake in the bank, which will come down to 80.2%.
Out of total branch network of 3194 branches, 2250 branches are fully automated and 324 branches are on CBS covering 35% of business. Bank has higher presence in Central, Eastern and Western India and lesser presence in North and South India.
Apart from domestic operations, bank has 20% stake in Indo-Zambia Bank where other key investors include Bank of Baroda, Bank of India and Govt of Zambia.

Investment Positives
Healthy business growth with healthy deposit mix. Central bank has reported 38% growth in advances in FY 07 compared to 37% in FY 06. Deposits have gone up by 24.5% in FY 07 compared to 9.4% in FY 06. Share of low cost deposits remain healthy at 42%.
Improvement in asset quality.Central Bank’s gross NPAs have come down from 6.8% as on FY 06 to 4.8% as on FY 07 and net NPAs have come down from 2.6% as on FY 06 to 1.7% as on FY 07.

Profitability on up trend
After decline in profits in FY 06 by 28%, bank has reported 94% growth in FY 07. RoA has improved from 0.35% in FY 06 to 0.62% in FY 07. RoE too has improved from 8.8% in FY 06 to 15.1% in FY 07.

Investments Concern
Turnaround has just begin - Central bank has just begun its turnaround and it is yet to be seen weather in a highly competitive scenario, it will be able to sustain it or not.

Valuation
Stock is available at 1.7x FY 07 ABV at lower end and 2x FY 07 ABV at upper end. With overall favourable macro environment, we believe that bank will be able to maintain its momentum. We recommend Subscribing to the issue