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Oriental Bank of Commerce - 1QFY2013 Result Update - Angel Broking
Posted On : 2012-08-03 20:42:01( TIMEZONE : IST )
OBC reported a decent set of numbers for 1QFY2013, with net profit growing by 10.4% yoy (up 47.8% qoq) due to higher other income (aided by higher recoveries from written-off accounts) and lower provisioning expenses than estimated by us. Sequential improvement in margins and asset quality were the key positives from the result. Asset quality improves sequentially: The business growth for the bank was moderate with advances growing by 16.0% yoy and deposits growing by 9.4% yoy. On the deposits front, growth was on the lower side (9.4% yoy) mostly due to shedding of high cost bulk deposits (Rs.6,000cr shed in last 4 months) and slower growth in CASA deposits (Current account deposits up by 11.5% yoy while saving account deposits up by 12.9% yoy). Sequentially, cost of deposits remained stable for OBC at 8.0% on account of stable CASA ratio and shedding of high cost bulk deposits. Yield on advances were higher on account of lower interest reversals and higher interest cash recoveries during the quarter, which led to reported NIMs increasing by 11bp qoq. The bank's fee income was higher by 67.3% yoy, primarily due to sharp surge in recoveries from written-off accounts (Rs.197cr compared to Rs.39cr in 1QFY2012). The bank's asset quality improved in 1QFY2013, with gross and net NPAs declining on an absolute basis by 5.7% and 6.2% qoq, respectively. The slippages for the quarter stood at Rs.707cr (Rs.231cr form agri lending), lower than the Rs.1,317cr (due to chunky NPAs) witnessed in 4QFY2012. The recoveries and upgrades during the quarter stood at Rs.430cr. The management has guided for similar run-rate of slippages and upgrades/recoveries going forward as well. Provision coverage ratio (including technical write-offs) increased by 290bp sequentially to 64.4% in 1QFY2013.
Outlook and valuation: The bank has been witnessing asset quality pressures on its loan book lately, however, going forward, we expect recoveries to pick up and incremental slippages to moderate (as reflected in 1QFY2013 results). We have factored in a 29.0% EPS CAGR over FY2013-2014 (aided by lower provisioning expenses). Considering the low valuations (0.5x FY2014 ABV), we recommend a Buy rating on the stock with a target price of Rs.278.
