Oriental Bank of Commerce - 4QFY2012 Result Update - Angel Broking

OBC reported disappointing results for 4QFY2012, with net profit dipping by 20.6% yoy (25.2% qoq) due to lower-than-expected net interest income and considerably higher than expected provisioning expenses. A sharp surge in slippages and the consequent interest income reversal leading to a qoq dip in reported NIMs were the key negatives of the results. We maintain our Buy view on the stock on inexpensive valuations.

Higher slippages dent overall profitability: On the business side, the bank's advances grew at a subdued pace of 1.2% qoq (up by 16.8% on a yoy basis) on the back of moderation in credit off-take to major segments such as large corporate, mid-corporate and retail. On the deposits front, growth was flat on a sequential basis (up 12.2% yoy). CASA deposits grew by healthy 8.1% sequentially (10.2% yoy). Consequently, CASA ratio improved to 24.1% in 4QFY2012 from 22.3% in 3QFY2012. A sharp surge in slippages led to interest income reversal of Rs.135cr, which mainly dragged down the bank's reported NIMs. Fee income witnessed healthy traction, growing by 16.3% qoq. On the asset quality front, the bank reported fresh slippages of Rs.1,317cr (higher by 88.5% qoq on an absolute basis) and considerably high annualized slippage ratio of 5.5% for 4QFY2012. Nevertheless, management sounded confident about the recovery of at least some portion of these slippages, citing their technical nature. Absolute gross and net NPAs increased by 10.8% and 19.3% qoq, respectively. PCR (including technical write-offs) dipped to 61.5%. In addition, the bank restructured loans worth ~Rs.3,800cr during the quarter, taking the outstanding restructured book to Rs.9,510cr. According to management, major advances due for restructuring in the current quarter include those given to Punjab and U.P. discoms and Moserbaer (combined exposure of ~Rs.2,200cr).

Outlook and valuation: We believe the current inexpensive valuations of 0.5x FY2014E ABV largely factor in the asset quality stress being faced by the bank currently. Going forward, incremental slippages are expected to moderate and recoveries are expected to increase. We also expect the bank to benefit from the declining trend in interest rates. Hence, we maintain our Buy recommendation on the stock with a target price of Rs.285.

Source : Equity Bulls

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