Oriental Bank of Commerce (Q1 FY13)

India Infoline News Service | Mumbai |

OBC’s loan book grew marginally by 0.7% qoq, versus our expectation of 2.5%.

CMP Rs233, Target Rs275, Upside 18.2%
 
  • OBC’s loan book grew marginally by 0.7% qoq, versus our expectation of 2.5%. The growth was driven by Large Corporate portfolio (3.1% qoq), followed by Retail lending (2.4% qoq). Agricultural loan book de-grew by 2.6% owing to repayment of short term loans lent in the previous quarter. Driven by 1.5% qoq growth in Term Deposits and 1% increase in CASA Deposits, total deposits reported a sequential growth of 1.4% close to our expectation of 1.5%. Bulk Deposits accounted for 26.2% of total deposits in Q1 FY13. CASA ratio remained almost flat at 24% in Q1 FY13. However, unlike other PSBs that witnessed steep decline in Current Deposits in this quarter, OBC reported 5.6% sequential growth. Mobilization of Savings Deposits remained weak, down by 0.6% qoq. Management has guided a 16% credit growth and 17% deposits growth in FY13.

  • Notwithstanding a 27bps decline in YoA, NIM expanded by 11bps to 2.79%. CoD remained flat in the current quarter. RoA improved 27bps qoq, from 0.6% in Q4 FY12 to 0.87%in Q1 FY12. Management has guided a NIM of 3% and RoA of 1% in FY13

  • Asset quality improved remarkably as reflected in 20bps sequential decline in GNPA ratio, from 3.17% to 2.97%. Delinquency ratio plunged to 2.5% compared to 4.7% in the previous quarter. Total cash recovery stood at Rs4.3bn, compared to Rs3.1bn in Q4 FY12. Management indicated to bring down the GNPA ratio to 2.8% by Mar’2013. Exposure to infra and power are still worrisome at 22.7% and 13.3%, respectively. Total exposure to Discoms is 5.6% of the total advances as on Jun’2012. Restructuring activity continued to be high for OBC in Q1 FY13 as well, increasing from 5.8% of total advances in Q4 FY12 to 9.6% in Q1 FY13. During the quarter, bank restructured advances worth Rs20.4bn. Credit cost remained high despite falling GNPA, thereby leading to an improvement in PCR from 61.5% in the previous quarter to 64.4% in the current quarter 

  • Non-interest income reported strong growth of about 18.8% sequentially, aided by robust recovery of Rs1.97bn compared to Rs0.3bn in Q4 FY12. Resultantly bank’s total income was boosted by 8.7% qoq. Healthy growth in total income and decline in operating expenses (3.1% qoq) led to an improvement in C/I ratio by 5ppt to 41.6%.

  • OBC is one of the better capitalized banks among its peer group. With CAR and Tier I ratio of 12.3% and 9.9% respectively. OBC is well positioned to support its planned balance sheet expansion for next 2-3 years.

  • Factoring in an expansion in margin, improvement in asset quality, strong capitalization, robust recovery and healthy provisioning, we assign a target multiple of 0.8x FY13E P/Adj.BV and target price of Rs275. Upgrade the stock to BUY.

Result table
(Rs m) Q1 FY13 Q4 FY12 % qoq Q1 FY12 % yoy
Total Interest Inc   42,872   42,208   1.6   35,965   19.2
Interest expended   (31,613)   (31,526)   0.3   (25,782)   22.6
Net Interest Inc   11,258   10,682   5.4   10,183   10.6
Other income   4,084   3,438   18.8   3,238   26.1
Total Income   15,343   14,119   8.7   13,421   14.3
Operating exp.   (6,377)   (6,580)   (3.1)   (5,408)   17.9
Provisions   (3,321)    (5,344)   (37.8)   (3,143)   5.7
PBT   5,644   2,196   157.1   4,871   15.9
Tax   (1,730)   453   (481.6)   (1,324)   30.7
Reported PAT   3,914   2,649   47.8   3,547   10.4
EPS   53.7   36.3   47.8   48.6   10.4
 
Key  Ratios Q1 FY13 Q4 FY12 chg qoq Q1 FY12 chg yoy
NIM (%) 2.8 2.7 0.1 2.9 (0.2)
Yield on advances (%) 12.4 12.7 (0.3) 11.4 1.0
Cost of Deposits (%) 8.0 8.0 (0.0) 7.2 0.8
Cost of Funds (%) 7.0 7.1 (0.0) 6.4 0.6
CASA (%) 24.0 24.1 (0.1) 23.4 0.7
C/D (x) 0.72 0.72 (0.00) 0.68 0.04
Non-interest income (%) 26.6 24.3 2.3 24.1 2.5
Non-int income/Int exp (%) 12.9 10.9 2.0 12.6 0.4
Cost to Income (%) 41.6 46.6 (5.0) 40.3 1.3
Provisions/Income (%) 21.6 37.8 (16.2) 23.4 (1.8)
BV (Rs) 377.2 361.2 16.0 337.9 39.3
RoA (%) 0.9 0.6 0.3 0.9
BSE 122.35 1.75 (1.45%)
NSE 122.50 1.80 (1.49%)

***Note: This is a NSE Chart

 

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