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Oriental Bank of Commerce- Asset quality strained: a negative surprise…
Oriental Bank of Commerce has been slow on growth and protecting its
margins. The bank aims to grow in tandem with targeted industry growth
as advances grew 16% YoY to | 90801 crore, deposits grew 17% YoY to
|129335 crore with CASA ratio stagnant at 25%. NII went up 18% YoY
(declined 4% QoQ) to | 1030 crore against I-direct estimate of | 1090
crore. Margins slipped 20 bps QoQ to 3.1% and profit climbed up 41%
YoY (2.7% QoQ) to | 408 crore (I-direct estimate: | 404 crore). We expect
the recent hike in BPLR and base rate by 50 bps to cushion the impact of
rise in cost of deposits, thus sustaining NIM over 3% for FY11E. Asset
quality remains a cause for concern as GNPA and NNPA increased by 27
bps and 21 bps QoQ to 1.9% and 0.9%, respectively. We estimate 31%
CAGR in PAT due to 18% CAGR in business over FY10-12E.
Asset quality strained: negative surprise…
GNPA increased 21% QoQ to | 1764 crore (GNPA ratio up 27 bps to 1.9%)
due to slippages amounting to | 480 crore (RBI’s annual financial inspection
led to slippages of | 190 crore due to RBI technicalities). NNPA scaled up
35% QoQ to | 816 crore (NNPA ratio up 21 bps QoQ to 0.9%) with
provision coverage down to 77.4% from 81% in Q2FY11. Restructured
assets declined 2% sequentially to | 5133 crore. Given the sudden change
of track we are cautious on further slippages (all banks shifting to system
based NPA recognition by March 31, 2011) and estimate GNPA and NNPA
ratio of 1.9% and 0.8% for FY12E.
Provision for second pension option and gratuity
The bank’s actuarial valuation for second pension option is estimated at |
1060 crore. Against this it already holds an ad-hoc provision of | 410 crore
(| 356 crore from FY10 and | 54 crore [| 18 crore per quarter] provided till
Q3FY11). Moreover, the bank has been providing | 50 crore per quarter
since Q1FY11 for the enhanced gratuity ceiling from | 3.5 to | 10 lakh.
Valuation
The bank reported a healthy returns matrix with RoA and RoE of 1.1% and
20.7%, respectively. It is targeting sustained profitability with NIM above
3%, RoA of over 1%, RoE of ~ 20% and improving its CASA share from the
current 25%, going ahead. However, deceleration from the previous high
business growth phase, CASA stagnant at ~25% levels and asset quality
deterioration remain an overhang on the bank’s performance. Therefore,
we are ascribing a lower target multiple for the bank from 1.3x to 1.1x
FY12E ABV and value the bank at | 384
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Oriental Bank of Commerce- Asset quality strained: a negative surprise…
Oriental Bank of Commerce has been slow on growth and protecting its
margins. The bank aims to grow in tandem with targeted industry growth
as advances grew 16% YoY to | 90801 crore, deposits grew 17% YoY to
|129335 crore with CASA ratio stagnant at 25%. NII went up 18% YoY
(declined 4% QoQ) to | 1030 crore against I-direct estimate of | 1090
crore. Margins slipped 20 bps QoQ to 3.1% and profit climbed up 41%
YoY (2.7% QoQ) to | 408 crore (I-direct estimate: | 404 crore). We expect
the recent hike in BPLR and base rate by 50 bps to cushion the impact of
rise in cost of deposits, thus sustaining NIM over 3% for FY11E. Asset
quality remains a cause for concern as GNPA and NNPA increased by 27
bps and 21 bps QoQ to 1.9% and 0.9%, respectively. We estimate 31%
CAGR in PAT due to 18% CAGR in business over FY10-12E.
Asset quality strained: negative surprise…
GNPA increased 21% QoQ to | 1764 crore (GNPA ratio up 27 bps to 1.9%)
due to slippages amounting to | 480 crore (RBI’s annual financial inspection
led to slippages of | 190 crore due to RBI technicalities). NNPA scaled up
35% QoQ to | 816 crore (NNPA ratio up 21 bps QoQ to 0.9%) with
provision coverage down to 77.4% from 81% in Q2FY11. Restructured
assets declined 2% sequentially to | 5133 crore. Given the sudden change
of track we are cautious on further slippages (all banks shifting to system
based NPA recognition by March 31, 2011) and estimate GNPA and NNPA
ratio of 1.9% and 0.8% for FY12E.
Provision for second pension option and gratuity
The bank’s actuarial valuation for second pension option is estimated at |
1060 crore. Against this it already holds an ad-hoc provision of | 410 crore
(| 356 crore from FY10 and | 54 crore [| 18 crore per quarter] provided till
Q3FY11). Moreover, the bank has been providing | 50 crore per quarter
since Q1FY11 for the enhanced gratuity ceiling from | 3.5 to | 10 lakh.
Valuation
The bank reported a healthy returns matrix with RoA and RoE of 1.1% and
20.7%, respectively. It is targeting sustained profitability with NIM above
3%, RoA of over 1%, RoE of ~ 20% and improving its CASA share from the
current 25%, going ahead. However, deceleration from the previous high
business growth phase, CASA stagnant at ~25% levels and asset quality
deterioration remain an overhang on the bank’s performance. Therefore,
we are ascribing a lower target multiple for the bank from 1.3x to 1.1x
FY12E ABV and value the bank at | 384
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