Oriental Bank of Commerce (OBC IN) Asset quality improves but one off dents bottom line

Transcription

1 INSTITUTIONAL EQUITY RESEARCH Oriental Bank of Commerce (OBC IN) Asset quality improves but one off dents bottom line INDIA BANKING Quarterly Update 14 May 2015 OBC reported a loss of Rs 1.78bn (due to reversal of gain on sale of NPA to ARC against Security receipt in FY14 after RBI objection) against profit expectation of Rs 1.8bn, excluding the one off, PBT was at Rs 1.1bn ( 76% yoy) below our expectation of Rs1.8 bn owing to higher NPA provisions. Trend in revenue continued to remain weak due to sluggishness in NII and decline in fee income. Decline in g sec yields gave a boost to treasury profits, but overall non interest income declined 16.7% yoy. Hence operating profits declined by 12.1% YoY. However, the only silver lining was lower addition to stressed assets. This coupled with higher NPA provisioning reduced net NPA levels on a sequential basis. Key highlights for Q4FY15 NII declined 1% yoy to Rs 13bn primarily due to moderate loan growth, and decline in NIM by 14bps yoy to 2.58%. The decline in NIM was primarily due to decline in yield on advances owing to interest reversal. Cost of deposits were higher by 2 bps yoy as the bank continued to hold high cost deposits raised in Q1FY15. The management indicated that NIM could see marginal decline in Q1FY16 but expects it to remain intact in the rest of the year. Systemically weak loan growth has impacted OBC s balance sheet growth. Consequently advances grew by meager 4.1% yoy and 2.8% on a sequential basis. Corporate loan book continued to remain a drag, witnessing a growth of 1% yoy and growth in agri credit was also muted at 2% yoy. Retail loan book and SME grew by 12% yoy and 8% yoy respectively. Deposits growth continued to remain moderate at (5.4% yoy) along with weak trend In CASA growth (5% yoy). CASA ratio declined 10 bps yoy to 24.2%. Non interest income declined 16.7% yoy (up 22.8% sequentially) owing to weak trend in fee income ( 10.5% yoy), as credit related fee income remained subdued. Forex income declined 41% yoy to Rs 240 mn. However, treasury gains were strong at Rs 2.2bn compared to Rs 270 mn in Q4FY14. Recovery from written off accounts during the quarter was at Rs 1.3 bn compared to Rs 2.95 bn in Q4FY14. Operating expenses grew 4.5% yoy to Rs 7.1bn as employee expenses increased moderately at 2.6% yoy and other operating expenses increased 7.2% yoy. During the quarter the bank made provision for wage revision amounting to Rs 2.02bn, increasing the wage hike assumption from 12% inq3fy15 to 15% inq4fy15. Consequently operating profit declined 12.1% to Rs 12.2bn. GNPA ratio declined by 25bps qoq to 5.18% and NNPAs declined 34bps qoq to 3.34%. Slippages for Q4FY15 were lower at Rs 7.6 bn (of which slippages from restructured loan book was at Rs 3.4 bn) compared to Rs13.2 bn in Q3FY15. Fresh restructuring during the quarter was at Rs 17.6 bn. The outstanding restructured loan book stands at Rs 124 bn (9.7% of loan book). The bank has restructuring pipeline of Rs14bn which has been admitted for restructuring before 31 st march but will be implemented in Q1FY16. Outlook & Valuation OBC has adopted a calibrated approach towards growth by focusing on non corporate loan segment like retail, agriculture and MSME. The overall credit growth is expected to growth at ~12% yoy with outlook of stable NIM of 2.6%. Moreover the bank aims to reduce its GNPA below 5% by end of FY16. We believe that the credit growth ~12% remains a challenge without uptick in corporate credit. However the operating expense to remain moderate as the bank has made adequate provision for wage settlement. Slew of measures undertaken by the government to revive stalled projects to make a positive impact on bank s asset quality. We expect strong earnings growth at CAGR of 82% due to lesser provision and absence of exceptional loss. The risk reward tradeoff seems favorable with bank trading at 0.5x FY17 ABVPS of Rs415. We maintain Buy on the stock with PT of Rs300 (implying a valuation of 0.7x FY17 ABVPS Rs415). BUY CMP RS 213 TARGET RS 300 (+41%) COMPANY DATA O/S SHARES (MN) : 300 MARKET CAP (RSBN) : 59 MARKET CAP (USDBN) : WK HI/LO (RS) : 377 / 184 LIQUIDITY 3M (USDMN) : 6.3 PAR VALUE (RS) : 10 SHARE HOLDING PATTERN, % PROMOTERS : 59.1 FII / NRI : 12.1 FI / MF : 21.3 NON PROMOTER CORP. HOLDINGS : 2.5 PUBLIC & OTHERS : 5.0 PRICE PERFORMANCE, % 1MTH 3MTH 1YR ABS REL TO BSE PRICE VS. SENSEX Apr 11 Apr 12 Apr 13 Apr 14 Apr 15 OBC BSE Sensex Source: Phillip Capital India Research KEY FINANCIALS Rs mn FY15 FY16E FY17E Pre prov ROE (%) Pre prov ROA (%) Net Profit % growth EPS (Rs) Adj BVPS (Rs) ROE (%) P/E (x) Adj P/BV (x) Source: PhillipCapital India Research Est. Manish Agarwalla ( ) Paresh Jain ( ) Pradeep Agrawal ( ) Page 1 PHILLIPCAPITAL INDIA RESEARCH

2 Result Update (Rs mn) Q4FY15 Q4FY14 YoY Growth Q3FY15 QoQ Growth Interest earned 50,909 49, , Interest expended 37,932 35, , Net interest income 12,977 13, , Net interest margins Non interest income 6,285 7, , Total Income 19,262 20, , Total operating expenses 7,106 6, , Payroll costs 3,964 3, , Others 3,142 2, , Pre provision Profit 12,157 13, , Provisions & Contingencies % Operating income Exceptional Item Na PBT 1,713 4, , Provision for Taxes 71 1, % of PBT Net Profit 1,784 3, ,012.3 Equity 2,999 2, , EPS, Rs ,012.3 Advances 14,52,613 13,95, ,13, Deposits 20,40,097 19,34, ,78, Advances / Deposits (%) Gross NPAs Gross NPAs (%) Net NPAs Net NPAs (%) CAR Tier I CAR Total Source: Company, PhillipCapital India Research Page 2 PHILLIPCAPITAL INDIA RESEARCH

3 Financials Income Statement Y/E Mar, Rs mn FY14 FY15 FY16e FY17e Interest on Loans 1,45,640 1,51,450 1,61,294 1,81,456 Interest on Investments 43,110 46,700 50,902 55,993 Others 1,424 1,464 1,611 1,772 Total Interest Earned 1,90,175 1,99,614 2,13,807 2,39,221 Total Interest Expended 1,38,904 1,48,772 1,59,071 1,76,410 Net Interest Income 51,271 50,842 54,736 62,811 Total non interest income 19,453 21,214 20,429 21,674 Total Income 70,724 72,056 75,166 84,484 Personnel Expenses 16,767 16,375 18,340 20,724 Other Expenses 12,402 13,411 14,922 16,796 Total Op expenses 29,169 29,785 33,262 37,520 Net Inc (Loss) before prov 41,555 42,271 41,904 46,964 Provision and contingencies 25,751 35,923 27,938 23,269 Net Inc (Loss) before tax 15,804 6,348 13,966 23,695 Provision for Income Tax 4,410 1,377 4,190 7,108 Net Profit 11,394 4,971 9,776 16,586 Balance Sheet Y/E Mar, Rs mn FY14 FY15 FY16e FY17e Assets Cash & Bal with RBI 1,42,689 1,07,758 1,19,670 1,35,162 Loans, Adv & Int accrued 13,90,798 14,52,613 16,26,927 18,52,184 Investments 6,27,493 6,97,814 7,77,999 8,69,097 Fixed Assets (Net) 12,556 13,525 15,148 17,118 Other assets 29,489 33,426 36,768 40,445 Total Assets 22,03,025 23,05,136 25,76,513 29,14,006 Liabilities Share capital 2,998 2,999 2,999 2,999 Reserves and Surplus 1,24,795 1,28,545 1,41,424 1,55,906 Hybrid Capital 8,500 8,500 13,500 18,500 Debt 32,250 37,250 39,250 49,250 Borrowing 37,886 19,700 21,670 23,837 Total Deposits 19,36,398 20,41,605 22,80,197 25,85,455 Other liab incld prov 53,684 60,287 71,473 72,059 Total Liabilities 22,03,025 23,05,136 25,76,513 29,14,006 Source: Company, PhillipCapital India Research Estimates Valuation Ratios FY14 FY15 FY16e FY17e Earnings and Valuation Ratios Pre provision Operating RoAE (%) RoAE (%) Pre provision Operating ROA (%) RoAB (%) EPS (Rs.) Dividend per share (Rs.) Book Value (Rs.) Adj BV (Rs.) Revenue Analysis Interest income on IBA (%) Interest cost on IBL (%) NIM on IBA / AWF (%) Core fee Inc / AWF (%) Portfolio gains / Total Inc (%) Op.Exp / TI (%) Op.Exp / AWF (%) Employee exps / Op exps (%) Tax / Pre tax earnings (%) Asset Quality GNPAs / Gr Adv (%) NNPAs / Net Adv (%) Growth Ratio Loans (%) Investments (%) Deposits (%) Networth (%) Net Int Income (%) 9.1 (0.8) Non fund based income (%) Non Int Exp (%) Profit Before Tax (%) 2.9 (59.8) Net profit (%) (14.2) (56.4) Asset / Liability Profile Avg Adv / Avg Dep (%) Avg Invst / Avg Dep (%) Incr Adv / Deposits (%) Avg Cash / Avg Dep (%) Capital Adequacy Ratio: Tier I (%) Internal Capital Generation rate (%) NNPAs to Equity (%) Page 3 PHILLIPCAPITAL INDIA RESEARCH

4 Management Vineet Bhatnagar (Managing Director) (91 22) Kinshuk Bharti Tiwari (Head Institutional Equity) (91 22) Jignesh Shah (Head Equity Derivatives) (91 22) Research Automobiles Economics Retail, Real Estate Dhawal Doshi (9122) Anjali Verma (9122) Abhishek Ranganathan, CFA (9122) Rohit Shroff (9122) Banking, NBFCs Infrastructure & IT Services Vibhor Singhal (9122) Portfolio Strategy Manish Agarwalla (9122) Deepan Kapadia (9122) Anindya Bhowmik (9122) Pradeep Agrawal (9122) Paresh Jain (9122) Logistics, Transportation & Midcap Technicals Vikram Suryavanshi (9122) Subodh Gupta, CMT (9122) Consumer, Media, Telecom Naveen Kulkarni, CFA, FRM (9122) Metals Production Manager Jubil Jain (9122) Dhawal Doshi (9122) Ganesh Deorukhkar (9122) Manoj Behera (9122) Ankit Gor (9122) Database Manager Cement Oil&Gas, Agri Inputs Deepak Agarwal (9122) Vaibhav Agarwal (9122) Gauri Anand (9122) Deepak Pareek (9122) Editor Engineering, Capital Goods Roshan Sony Ankur Sharma (9122) Pharma Hrishikesh Bhagat (9122) Surya Patra (9122) Sr. Manager Equities Support Mehul Sheth (9122) Rosie Ferns (9122) Sales & Distribution Corporate Communications Ashvin Patil (9122) Sales Trader Zarine Damania (9122) Shubhangi Agrawal (9122) Dilesh Doshi (9122) Kishor Binwal (9122) Suniil Pandit (9122) Sidharth Agrawal (9122) Execution Bhavin Shah (9122) Mayur Shah (9122) SINGAPORE Phillip Securities Pte Ltd 250 North Bridge Road, #06 00 Raffles City Tower, Singapore Tel : (65) Fax: (65) JAPAN Phillip Securities Japan, Ltd 4 2 Nihonbashi Kabutocho, Chuo ku Tokyo Tel: (81) Fax: (81) THAILAND Phillip Securities (Thailand) Public Co. Ltd. 15th Floor, Vorawat Building, 849 Silom Road, Silom, Bangrak, Bangkok Thailand Tel (66) Fax: (66) UNITED STATES Phillip Futures Inc. 141 W Jackson Blvd Ste 3050 The Chicago Board of Trade Building Chicago, IL USA Tel (1) Fax: (1) Contact Information (Regional Member Companies) MALAYSIA Phillip Capital Management Sdn Bhd B 3 6 Block B Level 3, Megan Avenue II, No. 12, Jalan Yap Kwan Seng, Kuala Lumpur Tel (60) Fax (60) INDONESIA PT Phillip Securities Indonesia ANZ Tower Level 23B, Jl Jend Sudirman Kav 33A, Jakarta 10220, Indonesia Tel (62) Fax: (62) FRANCE King & Shaxson Capital Ltd. 3rd Floor, 35 Rue de la Bienfaisance Paris France Tel (33) Fax : (33) AUSTRALIA PhillipCapital Australia Level 37, 530 Collins Street Melbourne, Victoria 3000, Australia Tel: (61) Fax: (61) INDIA PhillipCapital (India) Private Limited No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai Tel: (9122) Fax: (9122) HONG KONG Phillip Securities (HK) Ltd 11/F United Centre 95 Queensway Hong Kong Tel (852) Fax: (852) CHINA Phillip Financial Advisory (Shanghai) Co. Ltd. No 550 Yan An East Road, Ocean Tower Unit 2318 Shanghai Tel (86) Fax: (86) UNITED KINGDOM King & Shaxson Ltd. 6th Floor, Candlewick House, 120 Cannon Street London, EC4N 6AS Tel (44) Fax: (44) SRI LANKA Asha Phillip Securities Limited Level 4, Millennium House, 46/58 Navam Mawatha, Colombo 2, Sri Lanka Tel: (94) Fax: (94) Page 4 PHILLIPCAPITAL INDIA RESEARCH

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