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Analyst Research Report Snapshot


Oriental Bank of Commerce (OBC) - Qtr. Update - Dated - January 31, 2014




Axis Capital Limited


03 Feb 2014





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Performance across parameters was weak in Q3 for OBC (Bloomberg: OBC IN) due to elevated slippages (3.4%), high restructuring (Rs 14 bn in Q3), weak loan growth (8% YoY), lower than industry NIM (2.7%) and muted other income. We expect return ratios to remain subdued (RoE 8% in FY14E and ~10% in FY15) which will keep valuation under check. Management expects asset quality outlook to remain challenging (no guidance given). Restructuring to remain high with pipeline of Rs 11 bn for Q4. However, it is hopeful that recent government policies and RBI initiative on distressed assets may lead to reversal in asset quality cycle over a period of time. Downgrade to SELL: We reduce EPS estimate by ~20% each for FY14E/15E. Adjusted for GoI infusion of Rs 1.5 bn, ABV has reduced by ~5% in FY15E. Downgrade to SELL with revised TP of Rs150 (Rs 155 earlier). At CMP of Rs 174, the stock trades at 0.5x FY14E ABV of Rs 345 (Rs 351 earlier) and 0.5x FY15E ABV of Rs 367 (Rs 388 earlier). Our TP implies 14% downside from CMP. Q3 highlights  Q3 PAT was below estimate due to lower NIM (down 15 bps QoQ) and higher provisioning expenses. NIM was impacted due to higher slippages and lower yields in various segments. We expect NIM to remain lower due to (1) weak growth, (2) low CASA (24%) and (3) limited headroom to pass on increasing cost of funds  While slippages at Rs 10.4 bn was higher (3.4% slippage ratio), GNPA increase was restricted to 6% QoQ due to higher write offs and recoveries. Bank has restructured Rs 13.6 bn of loans in Q3 (Rs 3.5 bn in Q2) but outstanding restructured book increased only by ~Rs 3 bn to Rs 97 bn (7.2% of advances) due to bond issuance by SEBs Regards, Praveen Agarwal (Executive Director – BFSI) Institutional Equity Research Axis Capital Ltd. Tel.: + 91 22 4325 1102 Namesh Chhangani (AVP – BFSI) Institutional Equity Research Axis Capital Ltd. Tel.: +91 22 4325 1127 Deepak Agrawal (VP – BFSI) Institutional Equity Research Axis Capital Ltd. Tel.: +91 22 4325 1133

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