Money Tree

The salient features and extracts from the Red Herring Prospectus of the issue are given hereunder:

Issue Opens On : July 24, 2007
Issue Closes On : July 27, 2007
Issue Size : 8,00,00,000 Equity Shares
Face Value : Rs.10/-
Price Range : Rs. 85 to Rs. 102/-
Issue Type : Book Building
Tick Size : Re.1/-
Market Lot : 60
Minimum Order Qty : 60
Listing Stock Exchange : NSE, BSE

Objects Of the Issue :

To augment the capital base of the Bank to meet the future capital requirements arising out
of the implementation of the Basel II standards.
For general corporate purposes.
To meet issue expenses.

Basis for Issue Price :

Face Value : Rs.10/-
Issue Price : 8.5 Times(Lower Price Band) of the Face Value.
Issue Price : 10.2 Times(Higher Price Band) of the Face Value.
Issue Price : Rs. 85 to Rs. 102
EPS for the last financial year 2006-07 : Rs 13.11
EPS for the last year 2005-2006 : Rs 5.69
EPS for the financial year 2004-05 : Rs. 8.77
Weighted Average EPS for the years April 2004- March 2007 : Rs 9.91

Industry PE ratio:

Highest : 17.7
Lowest : 4.9
Industry Average : 10.4

PE ratio of Central Bank on the higher side of price band comes out to 7.78 times and on the lower side of the price band comes out to 6.48 times of the EPS for the financial year ended on 31st March 2007.

PE ratio of the Peer Group

Bank of Baroda : 10.1
Bank of India : 9.9
Canara Bank : 7.9
Union Bank of India : 8.2

Business Overview :

Central Bank is a public sector banking institution with branches in 27 States and in three Union Territories in India. According to the RBI’s Report on Trend and Progress of Banking in India, 2005-06 Central Bank is the third biggest bank in India based on the number of branches. As at March 31, 2007, the Bank had 3,194 branches, 267 extension counters, 261 ATMs, 34 satellite offices, 17 zonal offices and 78 regional offices. As at March 31, 2007, the Bank had a workforce of 39,055 employees (including part-time employees) serving over 25
million customers. The Bank’s main business is taking deposits, lending money and making investments. The deposit taking and lending business is divided into three main areas: retail, agriculture and corporate.

History :

Central Bank of India was founded on December 21, 1911 by Sir Sorabji Pochkhanawala with Sir Pherozesha Mehta as Chairman. The Bank was nationalised in 1969 along with 13 other major commercial banks and the Bank is currently wholly-owned by the Government of India. After this Issue, the Government of India’s shareholding in the Bank will be reduced to 80.20%.

Financial Information :

Total income of the Company for the year ended 31st March, 2007 : Rs. 67098.65 millions
Total income of the Company for the year ended 31st March, 2006 : Rs. 59164.03 millions
Total income of the Company for the year ended 31st March, 2005 : Rs. 61250.08 millions

Net profit (after tax) for the year ended 31st March, 2007 : Rs. 4980.13 millions
Net profit (after Tax) for the year ended 31st March, 2006 : Rs. 2574.18 millions
Net profit (after Tax) for the year ended 31st March, 2005 : Rs. 3574.08 millions

Comments :

The pricing is reasonably good when compared to its peers. The Bank has a large number of branches across India and has a good growth potential, but the stock cannot be expected to zoom in a short span of time. The investment seems to be safe at current valuations for a steady return over a period of time. The issue can be subscribed as a good long term investment.

Read R S Iyer (KR Choksey), Manish Bhatt (Prabhudas Lilladher) and S P Tulsian view on Moneycontrol.com