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Oriental Bank of
Commerce
F2Q11: A Muted Quarter
Quick comment: OBC reported PAT of Rs. 3.97 bn
Profits were up 9% QoQ and 47% YoY and compare
with our estimate of Rs 4.07 bn. Core pre-provision
profits were flat sequentially and grew by 104% YoY.
The key trends during the quarter were:
a) NII grew by 2% QoQ and 92% YoY. Margins ticked
down by 4 bps QoQ (up 128 bps QoQ). Volume growth
was muted with deposits growing +2% QoQ / 17% YoY
and loans growing -2% QoQ / +14% YoY.
b) Non-interest income (ex-cap gains) grew by 8% QoQ
and 9% YoY.
c) Expenses grew by 8% QoQ and 34% YoY. This is the
second quarter that OBC has made a gratuity provision
(of Rs. 0.5 bn per quarter) but it hasn’t yet crystallized
the 2nd pension option related liability (though they have
excess provisions of Rs. 2.6 bn which will provide an
offset)
d) The contribution from capital gains to earnings was
near zero.
e) NPL provisions moved up to Rs. 2.2 bn (100 bps of
loans, annualized) from Rs. 1.4 bn (66 bps) in the
previous quarter. New NPL slippages moved up
sequentially to 1.4% from 0.5%. Coverage ratio was
stable sequentially at 81%.
Maintain OW: While sequential NII growth was muted
and NPL provisions moved up this quarter, we note that
the bank still delivered an ROA of 1.1% for the quarter
and an ROE of 20.3% (with no support from capital
gains). In this context, we believe that the current
valuations are still attractive at 7.1x F2012e earnings,
3.9x PPOP and 1.2x BV. Hence, we maintain our
Overweight on the stock.
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