Oriental Bank of Commerce

Transcription

1 2QFY2013 Result Update Banking October 26, 2012 Oriental Bank of Commerce Performance Highlights Particulars (` cr) 2QFY13 1QFY13 % chg (qoq) 2QFY12 % chg (yoy) NII 1,157 1, Preprov. profit PAT (22.8) Oriental Bank of Commerce (OBC) reported a healthy set of numbers for 2QFY2013, with net profit growing by 80.2% yoy to `302cr. The bottomline was still below our estimates owing to a higher effective tax rate for 2QFY2013 (34.5%) than factored by us. We maintain our Neutral rating on the stock. Asset quality stable: The business growth for the bank was moderate with advances growing by 12.7% yoy and deposits growing by 9.8% yoy. The growth in advances was driven by a healthy growth in the retail book which grew by 27.8% yoy. On the deposits front, growth was on the lower side (9.8% yoy), mostly due to shedding of high cost bulk deposits (`6,700cr shed in last six months). The growth in current account savings account (CASA) deposits was healthy, with savings deposits growing by 16.1% yoy and current account deposits growing by 15.3% yoy. The CASA ratio as of 2QFY2013 stood at 24.1%. Sequentially, the cost of deposits declined marginally for OBC by 5bp to 7.9% on account of stable CASA ratio and shedding of high cost bulk deposits (now stand at 22.1% of the overall deposits). The margins for the bank remained flat qoq at 2.8% for 2QFY2013. The bank s fee income was higher by 37.0% yoy, primarily due to a sharp surge in recoveries from writtenoff accounts (`141cr compared to `39cr in 2QFY2012). The performance on the commissions, exchange and brokerage (CEB) income front was weak, with it declining by 5.0% yoy to `183cr. Slippages were under control during 2QFY2012 with the annualised slippage rate at 2.3% (lowest in the last four quarters). The gross NPAs stood at 2.9% (3.0% for 1QFY2013) while the net NPAs for the bank stood at 2.1% (2.0% for 1QFY2013). The provision coverage for the bank now stands at 64.5%. Outlook and valuation: Structurally modest deposit franchise and RoE profile notwithstanding, in recent quarters OBC has been delivering strong recoveries, stable GNPA and NNPA ratios and stable NIMs, unlike peers, leading to relatively better earnings outlook. We have factored in a 26.5% EPS CAGR over FY (aided by lower provisioning expenses). However considering the sharp run up in the stock recently, we recommend a neutral rating on the stock. Key financials (standalone) Y/E March (` cr) FY2011 FY2012 FY2013E FY2014E NII 4,178 4,216 4,927 5,716 % chg Net profit 1,503 1,142 1,654 1,827 % chg 32.5 (24.0) NIM (%) EPS (`) P/E (x) P/ABV (x) RoA (%) RoE (%) NEUTRAL CMP `309 Target Price Investment Period Stock Info Please refer to important disclosures at the end of this report 1 Sector Banking Market Cap (` cr) 9,010 Beta Week High / Low 324/190 Avg. Daily Volume 50,294 Face Value (`) 10 BSE Sensex 18,625 Nifty 5,664 Reuters Code Bloomberg Code Shareholding Pattern (%) ORBC.BO OBC@IN Promoters 58.0 MF / Banks / Indian Fls 25.4 FII / NRIs / OCBs 9.6 Indian Public / Others 7.0 Abs. (%) 3m 1yr 3yr Sensex OBC Vaibhav Agrawal Ext: 6808 vaibhav.agrawal@angelbroking.com Varun Varma Ext: 6847 varun.varma@angelbroking.com Sourabh Taparia Ext: 6872 sourabh.taparia@angelbroking.com

2 Exhibit 1: 2QFY2013 performance (standalone) Particulars (` cr) 2QFY13 1QFY13 % chg (qoq) 2QFY12 % chg (yoy) 1HFY13 1HFY12 % chg Interest earned 4,415 4, , ,702 7, on Advances / Bills 3,425 3, , ,757 5, on investments ,932 1, on balance with RBI & others 3 8 (60.7) 98 (96.6) (94.3) on others 0 1 (79.6) 1 (71.2) 1 35 (96.4) Interest Expended 3,257 3, , ,419 5, Net Interest Income 1,157 1, ,283 2, Other income (0.4) Other income excl. treasury (15.9) Fee Income (5.0) Treasury Income. 52 (13) (489.2) (57.1) Recov. from written off a/cs (28.2) Others (43.8) 41 (24.1) (19.3) Operating income 1,564 1, , ,098 2, Operating expenses ,280 1, Employee expenses (2.6) Other Opex Preprovision Profit ,818 1, Provisions & contingencies (5.2) (1.0) Provisions for NPAs (30.0) 342 (12.0) Provisions for Investments (6) (132) (95.3) 80 (107.7) (138) 214 (164.6) Other Provisions PBT (18.3) , Provision for Tax (8.0) PAT (22.8) Effective Tax Rate (%) bp 38.5 (403)bp bp Exhibit 2: 2QFY2013 Actual vs Angel estimates Particulars (` cr) Actual Estimates Var. (%) Net interest income 1,157 1,201 (3.7) Other income Operating income 1,564 1, Operating expenses Preprov. profit Provisions & cont PBT (5.1) Prov. for taxes PAT (22.3) October 26,

3 Exhibit 3: 2QFY2013 performance (standalone) Particulars (` cr) 2QFY13 1QFY13 % chg (qoq) 2QFY12 % chg (yoy) Advances (` cr) 117, , , Deposits (` cr) 164, , , CredittoDeposit Ratio (%) (25)bp bp Current deposits (` cr) 9,945 9, , Saving deposits (` cr) 29,676 28, , CASA deposits (` cr) 39,621 37, , CASA ratio (%) bp bp CAR (%) (23)bp 12.6 (53)bp Tier 1 CAR (%) (23)bp 9.9 (23)bp Profitability Ratios (%) Cost of deposits (5)bp bp Yield on advances (3)bp bp Yield on investments bp 7.5 0bp Yield on funds bp bp Cost of funds bp bp Reported NIM bp bp Costtoincome ratio (47)bp bp Asset quality Gross NPAs (` cr) 3,466 3, , Gross NPAs (%) (5)bp 3.0 (3)bp Net NPAs (` cr) 2,393 2, , Net NPAs (%) (1)bp bp Provision coverage ratio (%) bp bp Slippage ratio (%) (20)bp 6.3 (394)bp NPA to avg. assets (%) (30)bp 0.8 (16)bp ; Note: PCR including technical writeoffs Business growth moderate; NIMs remain stable The business growth for the bank was moderate with advances growing by 12.7% yoy and deposits growing by 9.8% yoy. The growth in advances was driven by a healthy growth in the retail book which grew by 27.8% yoy. The management indicated that they would continue to focus on retail credit to drive the loan growth forward. On the deposits front, growth was on the lower side (9.8% yoy) mostly due to shedding of high cost bulk deposits (`6,700cr shed in last six months), which has also led to slower credit offtake. However the bank is expected to pick up pace in its loan growth hereon and as per the management, utilization of excess SLR and traction in retail term deposits (up 12.2% qoq), despite further reduction in bulk deposits going ahead, should be able to fund higher loan growth. The management looks positive to achieve a loan growth of 16% for FY2013. The growth in CASA deposits was healthy, with savings deposits growing by 16.1% yoy and current account deposits growing15.3% yoy. The CASA ratio as of 2QFY2013 stood at 24.1% October 26,

4 Sequentially, the cost of deposits declined marginally for OBC by 5bp to 7.9% on account of stable CASA ratio and shedding of high cost bulk deposits (now stand at 22.1% of the overall deposits). The margins for the bank remained flat qoq at 2.8% for 2QFY2013. The management has guided for further reduction in bulk deposits going ahead which should help the bank push up the margins to 2.9% by 3QFY2013 and 3.0% by FY2013 end. Exhibit 4: Business growth picking up Exhibit 5: CASA ratio remains stable Adv. qoq chg (%) Dep. qoq chg (%) CDR (%, RHS) CASA ratio CASA yoy growth (%, RHS) (2.0) (0.1) Exhibit 6: Lower CoD due to shedding off of bulk deposits Exhibit 7: NIMs expand by 11bp qoq (%) Recoveries from written off accounts stay strong The bank s fee income was higher by 37.0% yoy, primarily due to a sharp surge in recoveries from writtenoff accounts (`141cr compared to `39cr in 2QFY2012). The performance on the CEB front was weak, with CEB income declining by 5.0% yoy to `183cr. The treasury income came in strong at `52cr compared to `18cr in 2QFY2012. The management had expected `450cr worth of recoveries from written off accounts for FY2013 initially at the start of the financial year, however the bank has so far already been able to witness recoveries of `338cr. The management has increased its guidance for these recoveries, but expects them to moderate down to normalised levels for 2HFY2013. October 26,

5 Slippages remain under control Slippages were under control during 2QFY2012 with the annualised slippage rate at 2.3% (lowest in the last four quarters). The gross NPAs stood at 2.9% (3.0% for 1QFY2013) while the net NPAs for the bank stood at 2.1% (2.0% for 1QFY2013). The provision coverage for the bank now stands at 64.5%. The management has guided for gross NPAs of 2.8% and net NPAs of 1.75% by FY2013 end. The bank had to provide `141cr on account of funded interest term loan (FITL) losses (Air India `37cr) and diminution in fair value on its restructured book during the quarter. The bank expects `500cr worth principle exposure to Air India to be refunded by the government and hence expects FITL losses to lower down to `25cr over the next six quarters. The bank s restructuring book increased by `329cr during 2QFY2013, taking the total restructuring book to `11,493cr. The management expects `2,500cr of restructuring during 3QFY2013 (`1,200cr due to Punjab state electricity board [SEB] and ~`1,300cr due to other industries). The effective tax rate for 2QFY2013 was 34.5%, however as per the management the overall effective tax rate for FY2013 is expected to be ~20% and hence the bank would have to provide lower for tax provisioning in 2HFY2013. Exhibit 8: NPA ratios trend Exhibit 9: Slippages under control Gross NPAs (%) Net NPAs (%) PCR (%, RHS) Slippages (%) Credit cost (%, RHS) ; Note: PCR incl. technical writeoffs Exhibit 10: Opex trends Exhibit 11: Cost ratios stable Staff Exp (` cr) Other opex (` cr) Staff Exp (yoy gr.)rhs CIR (%) Opex to average assets (%, RHS) (10.0) (30.0) October 26,

6 Investment concerns Modest CASA franchise and fee income The bank s relatively higher presence in metro and urban areas, compared to other public sector banks (PSBs), exposes it to increased competition, leading to lower CASA ratio. As a result, it is relatively more exposed to NIM pressures on account of its CASA ratio being one of the lowest amongst peers (24.1% as of 2QFY2013). The bank s fee income, at 0.6% of average assets in FY2012, is also on the lower side. Outlook and valuation Structurally modest deposit franchise and RoE profile notwithstanding, in recent quarters OBC has been delivering strong recoveries, stable GNPA and NNPA ratios and stable NIMs, unlike peers, leading to relatively better earnings outlook. We have factored in a 26.5% EPS CAGR over FY (aided by lower provisioning expenses). However considering the sharp run up in the stock recently, we recommend a neutral rating on the stock. Exhibit 12: Key assumptions Particulars (%) Earlier estimates Revised estimates FY2013 FY2014 FY2013 FY2014 Credit growth Deposit growth CASA ratio NIMs Other income growth (2.1) Growth in staff expenses Growth in other expenses Slippages Coverage ratio Source: Angel Research Exhibit 13: Change in estimates Particulars (` cr) Earlier estimates FY2013 Revised Earlier Var. (%) estimates estimates FY2014 Revised estimates Var. (%) NII 4,927 4,832 (1.9) 5,716 5,676 (0.7) Noninterest income 1,351 1, ,409 1, Operating income 6,278 6,277 (0.0) 7,125 7,090 (0.5) Operating expenses 2,593 2, ,827 2, Preprov. profit 3,685 3,672 (0.4) 4,298 4,251 (1.1) Provisions & cont. 1,480 1,319 (10.9) 1,594 1,537 (3.6) PBT 2,205 2, ,704 2, Prov. for taxes (7.2) PAT 1,654 1, ,827 1, Source: Angel Research October 26,

7 Exhibit 14: P/ABV band Price (`) 0.4x 0.7x 1x 1.3x 1.6x Apr06 Oct06 Apr07 Oct07 Apr08 Oct08 Apr09 Oct09 Apr10 Oct10 Apr11 Oct11 Apr12 Oct12 Exhibit 15: Recommendation summary Company Reco. CMP (`) Tgt. price (`) Upside (%) FY2014E P/ABV (x) FY2014E Tgt P/ABV (x) FY2014E P/E (x) FY201214E EPS CAGR (%) FY2014E RoA (%) FY2014E RoE (%) AxisBk Buy 1,231 1, FedBk Neutral HDFCBk Neutral ICICIBk* Buy 1,078 1, SIB Accumulate YesBk Buy AllBk Neutral (0.4) AndhBk Reduce (10) BOB Accumulate BOI Accumulate BOM Neutral CanBk Accumulate CentBk Neutral CorpBk Accumulate (2.2) DenaBk Neutral IDBI# Accumulate IndBk Neutral IOB Neutral J&KBk Neutral 1, OBC Neutral PNB Accumulate SBI* Accumulate 2,173 2, SynBk Neutral UcoBk Neutral UnionBk Accumulate UtdBk Buy VijBk Neutral ; Note:*Target multiples=sotp Target Price/ABV (including subsidiaries), # Without adjusting for SASF October 26,

8 Company Background Oriental Bank of Commerce is a midsized PSB with a balance sheet size of ~`1.8lakhcr. The bank's branches are mainly concentrated in the northern states (~60%), with majority being in the state of Punjab (~20%). The bank, unlike most other PSBs, has more than half of its branches located in the urban and metropolitan areas (~55%). Income statement (standalone) Y/E March (` cr) FY08 FY09 FY10 FY11 FY12 FY13E FY14E Net Interest Income 1,682 1,997 2,907 4,178 4,216 4,927 5,716 YoY Growth (%) (0.6) Other Income 628 1,071 1, ,240 1,351 1,409 YoY Growth (%) (20.0) Operating Income 2,310 3,068 4,107 5,138 5,456 6,278 7,125 YoY Growth (%) Operating Expenses 1,080 1,383 1,686 1,892 2,315 2,593 2,827 YoY Growth (%) Pre Provision Profit 1,230 1,685 2,421 3,245 3,141 3,685 4,298 YoY Growth (%) (5.7) (3.2) Prov. & Cont. (32) ,208 1,720 1,480 1,594 YoY Growth (%) (112.6) (1748.9) (14.0) 7.7 Profit Before Tax 1,262 1,159 1,604 2,037 1,420 2,205 2,704 YoY Growth (%) 19.9 (8.1) (30.3) Prov. for Taxation as a % of PBT PAT ,134 1,503 1,142 1,654 1,827 YoY Growth (%) (24.0) Reported PAT ,134 1,503 1,142 1,654 1,827 YoY Growth (%) (39.2) (24.0) October 26,

9 Balance sheet (standalone) Y/E March (` cr) FY08 FY09 FY10 FY11 FY12 FY13E FY14E Share Capital Reserves & Surplus 5,525 7,153 7,987 10,805 11,651 12,965 14,402 Deposits 77,857 98, , , , , ,152 Growth (%) Borrowings 1, ,337 2,589 3,059 3,447 3,884 Tier 2 Capital 1,726 2,250 2,550 3,050 2,200 2,145 2,091 Other Liab. & Prov. 3,507 3,838 4,048 5,553 4,964 5,647 6,365 Total Liabilities 90, , , , , , ,187 Cash Balances 7,322 6,880 8,087 9,515 8,462 7,931 7,966 Bank Balances 2,892 5,345 6,513 2, ,011 3,393 Investments 23,951 28,489 35,785 49,545 52,101 55,068 60,083 Advances 54,566 68,500 83,489 95, , , ,090 Growth (%) Fixed Assets 387 1,384 1,394 1,398 1,421 1,553 1,697 Other Assets 1,587 1,984 2,162 2,874 3,904 4,399 4,957 Total Assets 90, , , , , , ,187 Growth (%) October 26,

10 Ratio analysis (standalone) Y/E March FY08 FY09 FY10 FY11 FY12 FY13E FY14E Profitability ratios (%) NIMs Cost to Income Ratio RoA RoE B/S ratios (%) CASA Ratio Credit/Deposit Ratio CAR Tier I Asset Quality (%) Gross NPAs Net NPAs Slippages Loan Loss Prov./Avg. Assets (0.2) Provision Coverage Per Share Data (`) EPS ABVPS DPS Valuation Ratios PER (x) P/ABVPS (x) Dividend Yield DuPont Analysis (%) NII () Prov. Exp. (0.0) Adj. NII Treasury Int. Sens. Inc Other Inc Op. Inc Opex PBT Taxes RoA Leverage (x) RoE October 26,

11 Research Team Tel: Website: DISCLAIMER This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report. Disclosure of Interest Statement Oriental Bank of Commerce 1. Analyst ownership of the stock No 2. Angel and its Group companies ownership of the stock No 3. Angel and its Group companies' Directors ownership of the stock No 4. Broking relationship with company covered No Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (5 to 5%) Reduce (5% to 15%) Sell (< 15%) October 26,