For 4QFY2011, Oriental Bank of Commerce (OBC) delivered muted performance with net profit declining by 18.3% sequentially and growth of just 5.2% on a yoy basis to `334cr. The results were below our estimates of `359cr, in spite of `51cr write back towards tax liability for the quarter, due to higher-than-estimated provisioning expenses. However, considering the attractive valuations, we recommend Buy on the stock.
Strong sequential business growth, but with higher slippages: During 4QFY2011, the advances and deposit growth gathered pace with advances increasing by 5.6% qoq (14.9% yoy) and deposits growing by 7.5% qoq (15.6% yoy). Savings account growth was healthy at 25.0% yoy (up by 6.1% qoq), however the current account saw a decline of 8.0% yoy (up by 1.4% qoq). Consequently, the CASA ratio dropped by 64bp sequentially to 24.6% in 4QFY2011. OBC’s non-interest income increased by 13.0% yoy (up a healthy 29.6% qoq) to `300cr due to a 82.5% yoy increase in forex income to `38cr and a 60.4% yoy increase in recoveries to `57cr. On the asset quality front, Gross NPA and Net NPA ratios weakened to 1.98% (1.94% in 3QFY2011) and 0.98% (0.91% in 3QFY2011), respectively. Slippages for the quarter were high at `649cr compared to `473cr in 3QFY2011. Consequently the slippage ratio increased from 2.2% in 3QFY2011 to 3.1% in 4QFY2011. Operating expenses de-grew by 1.6% yoy on the back of 15.4% decline in employee expenses. Other operating expenses rose by 8.6% qoq and 19.0% yoy to `228cr.
Outlook and valuation: The stock is currently trading at 0.8x FY2013E ABV and even though NIMs are likely to witness pressure in the coming quarters as deposits get re-priced at higher rates, looking at the cheap valuations, we recommend a Buy on the stock with a Target Price of `403.
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