Muted Growth; Asset Quality Showing No Respite
OBC reported subdued PAT growth of 5% YoY – much below our ests due to low core income growth. Total biz continued its moderate growth momentum (up 15% YoY). NII grew by just 2% YoY, due to ~29 bps YoY decline in NIMs. Cost-to-income ratio has improved to 36% (from 38.6% in Dec-10) due to decline in operating expenses. Asset quality disappointed with gross NPAs up 9% QoQ and slippage ratio at above 2.5% level.
Key highlights
- Credit growth was driven by 41% YoY growth in SME portfolio, which now contributes ~18% to overall credit.
- OBC has provided pension liability pertaining to retired employees (for full liability) and existing employees (for 1/5th liability) of Rs 1.5 bn and Rs 1.7 bn respectively. The unrecognized pension liability stands at Rs 6.8 bn.
- The accelerated slippages were also contributed by the introduction of CBS based determination of NPAs. Advances under sub-Rs1mn category (non- CBS) would be ~Rs 30 bn and mgmt does not expect any major slippages from the same going forward.
Maintain BUY with revised TP of Rs 415
Biz momentum remained sluggish, with total biz growing by 15% YoY, much below industry growth rate. However, mgmt has guided for ~25% advances growth (we have factored in advances growth of 19% in FY12), ~18-20% Deposits growth, ~3% NIM and Gross NPA of less than ~2% in FY12E. At CMP of Rs 346, the stock is trading at 6x FY12E EPS of Rs 60 and 0.9x FY12E ABV of Rs 371. We have assigned a lower P/ABV of 1.1x (vs. 1.2x earlier) due to continued lackluster performance. However, the stock appears attractive based on valuation relative to peer group. We maintain BUY rating on the stock with a TP of Rs 415(upside of 22% from CMP.
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