Oriental Bank of Commerce Ltd - GEPL CAPITAL

Q3FY12 – Business growth above industry, asset quality concern remains

- The bank reported decline in PAT of 13.2% Y-o-Y in Q3FY12 mainly due to higher growth of 31% Y-o-Y in staff cost as the bank made provisions for staff welfare.

- NII has grown by 10.7% Y-o-Y as margins for the bank improved on sequential basis in Q3FY12.

- NIM stood at 2.9% in Q3FY12 vs 2.6% in Q2FY12.

- Advances have grown by 21.9% Y-o-Y and deposits grew by 20.8% Y-o-Y in Q3FY12.

- Asset quality improved as Gross NPA stood at 2.9% in Q3FY12 vs 3.0% in Q2FY12.

Result Highlights

Margins improve sequentially on back of higher yield on advances

NIM stood at 2.9% improving by 28bps Q-o-Q basis as yield on funds increased by 48bps Q-o-Q basis to 9.54% against 25bps increase in cost of funds Q-o-Q basis to 6.95% in Q3FY12. Major reason for low growth in cost of funds was decrease in bulk deposits from Rs.406.2 bn in Q2FY12 to Rs.194.9 bn in Q3FY12. CASA deposits stood at 22.28% in Q3FY12.

Business growth remained above industry average

Advances for the bank has grown by 21.9% Y-o-Y basis and deposits by 20.8% Y-o-Y basis taking CD ratio to 70.9% in Q3FY12. The bank has achieved its priority lending targets as set by RBI.

Management expects to achieve 20% growth in business in FY13E. Asset quality improved, restructure book to increase by Rs.~30 bn in Q4FY12.

Gross NPA has come down but restructured book increased to Rs.75.98 bn as additional amount to the tune of Rs.28.5 bn got restructured in Q3FY12. The bank expects additional amount to the tune of Rs.30 bn to get restructured in Q4FY12. Out of this amount of Rs.15 bn is towards Air India. The banks total restructure loan book stands at 5.5% of total loan book as on Q3FY12. If additional amount gets restructured then total percentage will increase to 8.2% of total loan book. Fresh restructured loan book includes Uttar Haryana SEB (exposure of Rs.9 bn) and GTL (exposure of Rs.6 bn) in Q3FY12.

During the quarter, there was fresh slippage of Rs.3.36 bn from agri segment, as per management there was recovery of Rs.2 bn in month of Jan' 12 from this fresh slippages.

Other updates

The bank had lower tax rate during quarter as provisions on restructured loan book give tax benefit. There was treasury gain of Rs.365 mn in Q3FY12. Retail segment saw fresh slippages of Rs.1.55 bn in Q3FY12.

Valuation & Viewpoint

The bank has performed well above industry growth but concerns on asset quality are still not over. Almost 3% of its loan book is in pipeline to get restructure which could add to low interest income and fresh slippages to NPA. At CMP, the stock is trading at 0.65x and 0.59x book value of FY12E and FY13E.

Source : Equity Bulls

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