Oriental Bank of Commerce - 2QFY2013 Result Update - Angel Broking

Oriental Bank of Commerce (OBC) reported a healthy set of numbers for 2QFY2013, with net profit growing by 80.2% yoy to Rs.302cr. The bottom-line was still below our estimates owing to a higher effective tax rate for 2QFY2013(34.5%) than factored by us. We maintain our Neutral rating on the stock.

Asset quality stable: The business growth for the bank was moderate with advances growing by 12.7% yoy and deposits growing by 9.8% yoy. The growth in advances was driven by a healthy growth in the retail book which grew by 27.8% yoy. On the deposits front, growth was on the lower side (9.8% yoy), mostly due to shedding of high cost bulk deposits (Rs.6,700cr shed in last six months). The growth in current account - savings account (CASA) deposits was healthy, with savings deposits growing by 16.1% yoy and current account deposits growing by 15.3% yoy. The CASA ratio as of 2QFY2013 stood at 24.1%. Sequentially, the cost of deposits declined marginally for OBC by 5bp to 7.9% on account of stable CASA ratio and shedding of high cost bulk deposits (now stand at 22.1% of the overall deposits). The margins for the bank remained flat qoq at 2.8% for 2QFY2013. The bank's fee income was higher by 37.0% yoy, primarily due to a sharp surge in recoveries from written-off accounts (Rs.141cr compared to Rs.39cr in 2QFY2012). The performance on the commissions, exchange and brokerage (CEB) income front was weak, with it declining by 5.0% yoy to Rs.183cr. Slippages were under control during 2QFY2012 with the annualised slippage rate at 2.3% (lowest in the last four quarters). The gross NPAs stood at 2.9% (3.0% for 1QFY2013) while the net NPAs for the bank stood at 2.1% (2.0% for 1QFY2013). The provision coverage for the bank now stands at 64.5%.

Outlook and valuation: Structurally modest deposit franchise and RoE profile notwithstanding, in recent quarters OBC has been delivering strong recoveries, stable GNPA and NNPA ratios and stable NIMs, unlike peers, leading to relatively better earnings outlook. We have factored in a 26.5% EPS CAGR over FY2013-2014 (aided by lower provisioning expenses). However considering the sharp run up in the stock recently, we recommend a neutral rating on the stock.

Source : Equity Bulls

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