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Oriental Bank of Commerce — Meeting with the
CMD; Risk-return positive; Reiterate Buy
Estimate Change
Management meeting re-affirms positive stance
We recently met the Chairman and Managing Director of OBC, Mr. Nagesh
Pydah. The CMD highlighted that, although loan growth has slowed down to
~16%, growth in FY12 is expected to rebound to +20-22%, in part owing to the
fresh capital raising that the bank can leverage upon. The Govt. is infusing
Rs17.4bn in OBC (14% dilution). OBC is also confident of maintaining margins,
yoy, in FY12 driven by leveraging on low LDRs (70%), focusing on improving
CASA (keeping funding costs under check) and benefitting from capital infusion.
Asset quality: Worst is over; Focus on CASA and SME loans
Asset quality too should remain stable with gross NPLs at <2%, with peaking of
slippages in 3QFY11 and higher recoveries going ahead. OBC to focus on SMEs
and mid-corporates for loan growth. On liability side OBC to focus on mobilizing
CASA (low at ~25%) through staff a/c’s, targeting entrepreneurs and SME a/c’s.
Govt. infusing Rs17.4bn capital; Tier 1 higher by +175bps
Government is infusing Rs17.4bn in OBC at Rs422/shr., which is at a ~25%
premium to MP (4th March). GOI’s stake to rise to ~58% (vs. ~51% now). But this
infusion will result in OBC’s Tier 1 rising by +175bps (Tier 1 est. at +10.8% in
FY12). However, est. RoEs are likely to come off by ~60bps to ~18% in FY12E.
Raise earnings on capital infusion, risk-return still positive
We have raised our net profit estimates by ~5% each for FY12/13 factoring in the
capital infusion. Earnings growth weak (13% yoy) in FY12E on capital infusion,
but net profit growth at +30% in FY12E. RoAs to rise to 1.2% in FY12E from 0.9%
in FY10. Risk–return remains positive, in our view, as OBC trades at 1.0x FY12E
book, with RoEs of ~18% and net profit growth of +30/27% in FY12/13E.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Oriental Bank of Commerce — Meeting with the
CMD; Risk-return positive; Reiterate Buy
Estimate Change
Management meeting re-affirms positive stance
We recently met the Chairman and Managing Director of OBC, Mr. Nagesh
Pydah. The CMD highlighted that, although loan growth has slowed down to
~16%, growth in FY12 is expected to rebound to +20-22%, in part owing to the
fresh capital raising that the bank can leverage upon. The Govt. is infusing
Rs17.4bn in OBC (14% dilution). OBC is also confident of maintaining margins,
yoy, in FY12 driven by leveraging on low LDRs (70%), focusing on improving
CASA (keeping funding costs under check) and benefitting from capital infusion.
Asset quality: Worst is over; Focus on CASA and SME loans
Asset quality too should remain stable with gross NPLs at <2%, with peaking of
slippages in 3QFY11 and higher recoveries going ahead. OBC to focus on SMEs
and mid-corporates for loan growth. On liability side OBC to focus on mobilizing
CASA (low at ~25%) through staff a/c’s, targeting entrepreneurs and SME a/c’s.
Govt. infusing Rs17.4bn capital; Tier 1 higher by +175bps
Government is infusing Rs17.4bn in OBC at Rs422/shr., which is at a ~25%
premium to MP (4th March). GOI’s stake to rise to ~58% (vs. ~51% now). But this
infusion will result in OBC’s Tier 1 rising by +175bps (Tier 1 est. at +10.8% in
FY12). However, est. RoEs are likely to come off by ~60bps to ~18% in FY12E.
Raise earnings on capital infusion, risk-return still positive
We have raised our net profit estimates by ~5% each for FY12/13 factoring in the
capital infusion. Earnings growth weak (13% yoy) in FY12E on capital infusion,
but net profit growth at +30% in FY12E. RoAs to rise to 1.2% in FY12E from 0.9%
in FY10. Risk–return remains positive, in our view, as OBC trades at 1.0x FY12E
book, with RoEs of ~18% and net profit growth of +30/27% in FY12/13E.
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