OBC’s loan book grew by 5.3% qoq/15.2% yoy versus our expectation of 3.3% qoq/12.9% yoy. The growth was witnessed across all the segments. On yoy basis, Retail (25.3%) exhibited strong traction followed by Large Corporate (17.5%) and Agriculture (16%). Growth in Mid-corporate segment (13.3% yoy) was deliberately slowed down given the stress confront by this segment. Deposits grew by 4.4% qoq/12.8% close to our expectation of 3.7% qoq/12.0% yoy. Growth was largely led by Bulk (9.1% qoq) and CASA (7.3% qoq) deposits. Resultantly both Bulk and CASA deposits’ share moved up 87bps and 67bps qoq respectively. However on yoy basis, Bulk Deposits declined significantly by 17.1% reducing its share to 20.3% of total deposits from 27.6% in Q4 FY12. CASA ratio stood at 24.6% in Q4 FY13; it is expected to increase further with break-even of the branches added in past two years (228 and 152 branches added in FY13 and FY12 respectively).
NIM declined by 2bps qoq to 2.82% mainly on account of interest reversal (Rs600mn) pertaining to NPA and base rate cut of 15bps in Feb’2013. NIM is expected to remain under pressure on account of immediate impact of lending rate cuts followed by lagged impact of deposit rate cut expected in future.
Asset quality deteriorated further with GNPA ratio rising from 2.98% in Q3 FY13 to 3.21% in Q4 FY13. Delinquency ratio shot up from 2.7% in Q3 FY13 to 3.3% in Q4 FY13, mainly due to one large account (Rs4.4bn) pertaining to solar power industry that failed to comply certain restructuring requisites owing to which it slipped to the NPA category. Outstanding restructured portfolio stands at 7.6% of total advances (Rs99.4bn) compared to 8.9% in the previous quarter; bank upgraded advances worth Rs10bn to the standard advances category in Q4 FY13 owing to their satisfactory performance (as per the RBI guidelines). During the quarter, bank added advances to the tune of Rs8bn to the restructured book and expects similar amount to be restructured in Q1 FY14 as well. Punjab SEB which was expected to be restructured in Q4 FY13 has called off restructuring due to turnaround in its operating performance. We believe asset quality is likely to remain under pressure in the near term.
Provisions (excluding tax provisions) have spiked by 25.7% qoq and 42% yoy on account of high slippages and restructuring. Higher slippages resulted in an increase in credit cost to 1.6% from 1.2% in the previous quarter. PCR remained almost unchanged at 63%. Bank intends to increase this ratio to 68% by the end of FY14. There was one-off provision for increase in wage bill of Rs700mn in Q4 FY13. Also there was a write-back of Rs1.2bn in tax provisions during the quarter due to the benefits accrued from Supreme Court’s judgment in Catholic Syrian Bank’s case.
Non-interest income reported robust growth of 22.2% sequentially, driven by healthy recoveries (Rs1,160mn in Q4 FY13 compared to Rs390mn in Q4 FY12) and steady growth in fee income (23.7% qoq). Going forward, we expect healthy growth in non-interest income to continue. Cost/Income ratio increased by 206bps qoq to 43.5% in Q4 FY13 on account of weak NII growth and one-off in Opex (related to pension provisions.)
With more than 25% correction in the share price over past four months, we believe the stock has largely factored the stress on asset quality and margins. At a valuation of 0.72x FY15E P/adj.BV, the downside risk is limited. Retain BUY; reducing target price to Rs282.
|(Rs mn)||Q4 FY13||Q3 FY13||% qoq||Q4 FY12||% yoy|
|Total Interest Income||45,343||44,687||1.5||42,208||7.4|
|Net Interest Income||12,138||12,044||0.8||10,682||13.6|
|Key Ratios||Q4 FY13||Q3 FY13||chg qoq||Q4 FY12||chg yoy|
|Yield on advances (%)||12.3||12.3||0.1||12.3||(0.0)|
|Cost of Deposits (%)||7.8||7.8||(0.0)||8.0||(0.2)|
|Non-interest income (%)||27.6||23.9||3.7||24.3||3.2|
|Non-int inc/Interest exp (%)||13.9||11.6||2.3||10.9||3.0|
|Cost to Income (%)||43.5||41.5||2.1||46.6||(3.1)|
|Gross NPA (%)||3.2||3.0||0.2||3.2||0.0|