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Oriental Bank of Commerce (OBC) - Qtr. Update - Dated - May 02, 2013




Axis Capital Limited


03 May 2013





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Asset quality improved in Q4 with the management meeting its guidance of lower slippages (1.9% vs. average 2.7% in preceding 4 quarters) and higher cash recoveries (Rs 15.3 bn vs. Rs 10 bn in Q3). However, restructured book rose 83 bps QoQ to ~7% due to restructuring of certain large accounts. While management targets GNPA ratio at below 2% level (from current 2.6%), we expect improvement to be limited at 2.4% due to higher restructured book. Advances growth at 4% YoY (up 11% QoQ) was below industry average. Management targets to revive business growth with loan growth target of above 20%. However, we expect 15% CAGR over next two years as economic activity is yet to pick up. Valuation We expect Canara Bank to benefit from infra reforms as it has 19% loan book exposure to the sector (Rs 466 bn, of which Rs 302 bn is Power). This along with traction in business growth, reduction in slippages, improvement in cash recoveries, and gains on the treasury bond book (39% AFS book with duration of 4.3 years) augurs well. Maintain BUY with TP of Rs 514 (0.9x FY15E ABV) which implies upside of 25% from CMP of Rs 412. The stock trades at 0.8x FY14E ABV of Rs 495 and 0.7x FY15E ABV of Rs 571.Key risks to our call: (1) increase in tax rate level (currently low ~22%), and (2) higher than expected delinquencies in restructured book. Regards, Praveen Agarwal (Executive Director – BFSI) Institutional Equity Research Axis Capital Ltd. Tel.: + 91 22 4325 1102 Siddharth Goel (AVP – BFSI) Institutional Equity Research Axis Capital Ltd. Tel.: +91 22 4325 1126 Namesh Chhangani (AVP – BFSI) Institutional Equity Research Axis Capital Ltd. Tel.: +91 22 4325 1127

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