Oriental Bank of Commerce - 4QFY2011 Results Flash

Oriental Bank of Commerce - 4QFY2011 Results Flash

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 Rs334cr. The results were below our estimates of Rs359cr, in spite of Rs51cr write back towards tax liability for the quarter, due to higher-than-estimated provisioning expenses.

Key highlights:

·         Business growth momentum was healthy with advances and deposits growth of 5.6% qoq and 7.5% qoq, respectively. On a yoy basis, advances and deposits grew at slower pace of  13.9% and 15.6%, respectively.

·         Net Interest Income was flat both sequentially as well as on a year on year basis in spite of moderate business growth. Calculated NIM declined by ~20bp due to the rising cost of funds in the system as a whole and the bank's relatively weak liability profile. Non-interest income growth was strong sequentially, registering a growth of 29.6% qoq, while on a year on year basis it grew by 13.0%.

·         Operating expenses were kept in control. 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 Rs228cr. During FY2011, the bank fully recognized the provision for enhancement in gratuity limits of Rs138cr in spite of an option to amortize the same over a five year period. It also took a hit of Rs171cr towards 1/5^th of the additional liability for serving employees under the second pension option and Rs151cr towards liability for retired employees. Balance liability carried forward for Pension stands at Rs684cr. As a result of decline in operating expenses compared to growth in operating income the cost-to-income ratio of the bank improved to 35.8% from 38.6% in 3QFY2011 and 38.1% in 4QFY2010.

·         The asset quality of the bank deteriorated during 4QFY2011 with the absolute Gross NPAs increasing by 8.9% qoq and Net NPAs rising by 15.0% qoq. Gross and Net NPA ratios also deteriorated to 2.0% and 1.0%, respectively. The provision coverage ratio stood at 76.8% (77.4% in 3QFY2011) including technical write-offs. Provisioning expenses were substantially higher, rising by 192.3% qoq and 34.3% yoy to Rs560cr (at ~1.4% of average assets vs ~0.6% of average assets during 9MFY2011)

·         The bank's CAR improved to 14.2% from 12.4% in 3QFY2011 on the back of capital infusion by the government.

At the CMP, the stock is trading at 0.8x FY2013E ABV. We maintain our Buy recommendation on the stock, as we believe that the negatives are largely factored into the current valuations (of 0.76x as compared to last five year median of 0.94x). We may revise our estimates post interaction with the management.

 

Exhibit 1: 4QFY2011 Actual vs. Estimates
(Rs cr)	Actual	Estimates	Var (%)
Net interest income	1,013	1,034	(2.0)
Non-interest income	300	256	17.0
Operating income	1,313	1,291	1.8
Operating expenses	470	495	(5.0)
Pre-prov. profit	843	796	5.9
Provisions & contingencies	560	236	137.5
PBT	282	560	(49.5)
Prov. for taxes	(51)	200	NA
PAT	334	359	(7.1)

  Source: Company, Angel Research

 

 

Exhibit 2: 4QFY2011 Performance summary

 

(Rs cr)	4QFY2011	3QFY2011	% chg (qoq)	4QFY2010	% chg  (yoy)
Interest earned	3,232	3,033	6.6	2,685	20.4
Interest expenses	2,219	2,003	10.8	1,696	30.8
Net interest income	1,013	1,030	(1.6)	989	2.4
Non-interest income	300	231	29.6	265	13.0
Operating income	1,313	1,261	4.1	1,255	4.7
Operating expenses	470	487	(3.5)	478	(1.6)
Pre-prov. profit	843	774	8.9	777	8.5
Provisions & contingencies	560	192	192.3	417	34.3
PBT	282	582	(51.5)	359	(21.4)
Prov. for taxes	(51)	174	NA	42