Centurion Bank: Geared for the next phase

PENNY WISE

M-cap as on Nov 5, 04

Total assets

* ABV (Rs)

** P/ABV (x)

M-cap/total assets (x)

Federal Bank

754.75

14925.64

296.34

1.17

5.06

HDFC Bank

12108.96

42177.21

94.09

4.50

28.71

Karur Vysya Bank

548.57

7025.36

395.5

0.77

7.81

ICICI Bank

22694.81

123233.72

113.56

2.72

18.42

UTI Bank

3518.63

24067.75

48.89

3.09

14.62

IndusInd Bank

1213.96

14930.6

27.49

1.52

8.13

IDBI Bank

968.51

12956.82

28.51

1.57

7.47

Centurion Bank

464.22

3491.57

1.07

7.63

13.3

Karnataka Bank

429.97

10539.18

172.11

0.62

4.08

Bank of Punjab

228.38

4813.86

23.11

0.94

4.74

* ABV - Adjusted book value per share ** P/ABV - Price to adjusted book value

 Strong retail focus  Centurion's business-mix is inviting. It derives 80 per cent of its revenues from the retail segment, higher than most of its peers. Currently, the retail segments is booming and offers the best spreads.  "Retail has been our forte and will continue to be the same," says Jaggia. For Q2FY04, retail assets stood Rs 1,658 crore, a growth of 80 per cent y-o-y. 

Retail growth	(Y-o-y, in %)
Net ICICI Bank	58
HDFC Bank	50
UTI Bank	47
Centurion Bank	80

 The bank's plans are already in place. First, it is expanding its network (75 branches, 24 extension counters and 152 ATMs) by converting the branches of erstwhile Twentieth Century Finance Corp (which are operating as marketing offices of Centurion) spread across the south and west, into full-fledged branches. It already has the approval to convert 14 such offices into branches.  It intends to diversify its product basket. Currently, 40 per cent of its retail advances are for two-wheeler finance where it is among the top three players. Another 40 per cent is accounted for by commercial vehicles and the construction segment where the bank figures among the top 10. It expects to augment its presence in other retail products, too.  Centurion also hopes to leverage its connection with Bank Muscat to increase its NRI assets to 20 per cent of the total retail book by end FY05. To grow fee-based income, it is focussing on cash management and trade financing services (fee-based income stood at Rs 19 crore for H1FY04.  Healthier financials  Centurion looks financially stronger now. Over the past five years, it has cut its bad debts with provisions and write-offs totalling Rs 450 crore. From a loss of Rs 105.14 crore for FY04, the bank has turned in a net profit of Rs 8.41 crore for H1 in FY05. For Q2, it recorded a 54.2 per cent rise in net interest income to Rs 42.94.  Though it booked treasury losses, its average portfolio maturity has been reduced to below one year which will shield it if rates rise further. Other income of Rs 12.64 crore includes a treasury loss of Rs 0.32 crore against a profit of Rs 18.92 crore. While deposit growth remained flat, advances increased 62 per cent to over Rs 1,900 crore.  Since the bank is focused on retail, spreads are impressive. Yield on advances stood at 9.6 per cent (10.2 per cent), while cost of deposits fell to 5.3 per cent (6.5 per cent), resulting in a 60 basis-point rise in spread to 4.3 per cent.  The bank reduced its net NPA levels to 3.41 per cent (6.6 per cent). Incremental gross NPAs, too, fell Rs 11 crore to Rs 212 crore. 

Financials
(In Rs crore)	Q2FY05	Q2FY04	% change
Net interest income	42.94	27.83	54.29
Net profit	5.26	1.94	171.13
EPS (Rs)	0.09	0.13	-30.77
NPA (%)	3.41	6.60	-
Yield on advances (%)	9.60	10.20	-
Cost of deposits (%)	5.30	6.50	-
Capital adequacy ratio (%)	9.51	2.20	-

 A takeover target?  The possibility of a merger or acquisition is expected to drive the stock. Analysts agree that the way ahead for the banking sector is consolidation and Centurion could either get taken over or be merged with another bank with a strong presence in northern and eastern regions.  The bank