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Oriental Bank of Commerce Q4FY14 results update

May 2, 2014, Friday, 11:13 GMT | 06:13 EST | 14:43 IST | 17:13 SGT
Contributed by Nirmal Bang


OBC reported results broadly in line with estimates. Increase in NII (7.8% YoY), higher non-interest income (63.4% YoY) and lower opex resulted in 46.2% YoY increase in pre provision profit. However, higher provisions and higher tax rate impacted bottom line performance resulting in flattish growth in PAT.

- Asset quality further deteriorated with slippages at Rs 1,205 (Rs 1,042 cr in last quarter). As per the management accounts worth Rs 350 cr which were supposed to be restructured got delayed and thus slipped into NPA. Sale to ARC stood at Rs 528 cr. The bank restructured Rs 1,038 cr in Q4FY14 taking the outstanding standard restructured book to Rs 10,659 cr (7.6% of total loan book). Restructuring pipeline stands at Rs 600 cr. Going forward management has guided for slippages in the range of Rs 800 cr per quarter for FY15E.

- Advances increased by 7.9% YoY and 3.8% QoQ with focus on retail advances which grew 11% YoY. Large and mid corporate advances grew by 9.64% YoY and 6.88% YoY respectively. The bank is not targeting any aggressive growth on the loan book given the stress in the environment. Focus will be more towards consolidation rather than chasing growth. We have factored in growth of 11.5% for FY15E.

- CASA deposits grew 8.93% YoY largely supported by growth in SA deposit (11.54% YoY) while CA deposits continued to remain subdued at 1.9%. CASA ratio stood flat at 24.3%.

- Net Interest Income increased 7.8% YoY and 6.4% QoQ. NIMs declined by 10 bps on YoY basis and improved 3 bps on QoQ basis. We expect margins to be at 2.6% for FY15E.

Non-interest income jumped both QoQ and YoY led by growth in core fee income and also by impressive recovery in written off accounts.

The bank managed to keep opex under control with decline in both employee and other expenses leading to lower cost to income ratio of 32.9%. For FY14, cost to income ratio stood at 41.2%. We expect cost to income ratio to remain stable at current levels.

CAR stood at 11.01% as on Mar 2014 with Tier I ratio of 8.86%.

The bank declared final dividend of Rs 3.6 per share.

We are cautious by the increasing pressure on asset quality and believe that asset quality concerns will continue to weigh on the performance of the bank. Consequently, the stock will continue to remain an underperformer in the near term. Considering this, we do not expect substantial improvement in the bank’s performance in the near term unless macro environment shows signs of recovery. We expect the bank to report CAGR of 14.6% vs decline of 14.2% in FY14. At CMP, the stock is trading at 0.77x and 0.72x FY15E and FY16E Adj BVPS and 5.69x and 4.83x FY15E and FY16E EPS respectively. We maintain HOLD with a target price of Rs 275; an upside of 10.8% from current levels.