IPO Note : SUBSCRIBE to Central Bank of India

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Strong recoveries from written-off portfolio to enhance valuations Investment rationale

Extensive network of close to 3,200 branches across India, with a large presence in the fast-growing rural and semi-urban regions.

Financial restructuring in FY07 has considerably strengthened the balance sheet, though there is scope for improvement vis-à-vis peers.

Large portfolio of written-off accounts offers significant potential for value unlocking, as the strong economy has buoyed recovery prospects. Profitability would be aided by higher NPA recoveries and lower incremental slippage ratio – key valuation drivers.

Renewed focus on high-yielding assets, strong base of CASA deposits and fund infusion from the IPO to aid margin expansion, going forward.

Government holding of around 80% post-equity issue would provide flexibility on CAR management to sustain business growth.

Key concerns : Provisions totalling Rs 6.5bn yet to be made as per recent AS-15 norms; this would substantially erode net worth. Inability to increase fee income or recover a large proportion of baddebts would dent profitability.

Valuation : At the lower band of Rs 85, the issue is priced at 1.7x FY07 ABV,proving book-value accretive. Also, rising profitability would keep RoEhigh. We recommend that investors Subscribe at the lower end of the price band.

Investment in equity shares has its own risks. Sincere efforts have been made to present the right investment perspective.The information contained herein is based on analysis and up on sources that we consider reliable. I, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and I am not responsible for any loss incurred based upon it.& take no responsibility whatsoever for any financial profits or loss which may arise from the recommendations given in this blog.