Oriental Bank of Commerce
Asset quality pressures mount
PhillipCapital (India) Pvt. Ltd.
BANKING: Quarterly Update
The bank disappointed on growth and asset quality front. Margin containment
took precedence over balance growth during the quarter which witnessed sharp
rise in short term rates owing to RBI policy action. NIM declined marginally by 6
bps QoQ to 2.84% as the bank continued to shed bulk deposits which resulted in
a decline of 10 bps QoQ in cost of deposits. NII growth moderation coupled with
decline in non-interest income, stable opex and higher loan loss provisions
resulted in a PAT decline of 16.8% YoY to Rs 2.5 bn. The effective tax rate was
much lower at 8.4%. Asset quality also deteriorated with higher than expected
slippages at Rs 10.1 bn and PCR declined from 63.88% in Q1FY14 to 61.88% in
Q2FY14. Restructuring pipeline also remains high at Rs 20 bn.
9 March 2016
BUY
OBC IN
| CMP RS 153
TARGET RS 210 (+37%)
Company Data
O/S SHARES (MN) :
MARKET CAP (RSBN) :
MARKET CAP (USDBN) :
52 - WK HI/LO (RS) :
LIQUIDITY 3M (USDMN) :
FACE VALUE (RS) :
292
45
0.7
368 / 171
5.1
10
Share Holding Pattern, %
Key highlights for Q2FY14
 Stable NIMs at 2.84% (-6 bps QoQ/+5 bps YoY) and moderation in advances
growth at 8.9% YoY resulted in a NII growth of 10.7% YoY to Rs 12.8 bn.
Sequential NIM decline was driven by 17 bps decline in yield on advances to
11.9% on the back of higher interest reversals (stemming from agri
slippages). Cost of deposits declined by 10 bps QoQ to 7.6%.
 Advances grew by 8.9% YoY due to moderation in agri and corporate loans.
Deposits growth also moderated to 6.7% YoY as the bank continued to shed
bulk deposits. Bulk deposits now constitute 15% of total deposits. CASA
stood at 24.54% (23.74% in Q1FY14).
 Non-interest income declined by 23.3% YoY due to moderation in fee income
growth, treasury losses and lower recoveries from written off accounts.
 Provisions remained elevated driven by higher loan loss provisions. On its
investment book, the bank transferred securities from AFS/HFT to HTM and
realized a shifting loss of Rs 1.1 bn, while on the remaining MTM book, the
bank made a provision of Rs 0.8 bn (amortized over 3 quarters under RBI
dispensation). The bank utilized excess provisions on balance sheet to
provide for the MTM treasury losses.
 GNPA increased by 41 bps QoQ to 3.77% driven by slippages of Rs 10.1 bn,
largely coming from agri and a corporate account (involved in road
construction). The bank expects 80% of the agri slippages to be recovered in
Q3FY14 due to roll over. The bank restructured assets worth Rs 3.5 bn in
Q2FY14 and issued bonds worth Rs 11 bn for Rajasthan and UP discoms
which took the outstanding restructured book to Rs 94 bn (7.3% of
advances). Restructuring pipeline remains large at Rs 20 bn.
Outlook & Valuation
OBC’s balance sheet growth has moderated over the past 2 years. We expect
that trend to continue over FY14-15E. NIM will likely see some improvement in
the ensuing quarters due to strong recoveries in the agri book. However, on
overall asset quality, we remain skeptical given the huge restructuring pipeline at
Rs 20 bn and continued asset quality stress. This, we believe will exert pressure
on earnings and return ratios. At the CMP of Rs 153, the stock trades at 0.4x
FY14E Adj BV. Given attractive valuations, we maintain our Buy rating with a
revised PT of Rs 210 (0.6x FY15E Adj BV).
PROMOTERS :
FII / NRI :
FI / MF :
NON PROMOTER CORP. HOLDINGS :
PUBLIC & OTHERS :
58.0
10.3
24.6
2.3
4.9
Price Performance, %
ABS
REL TO BSE
1mth
5.9
-2.6
3mth
6.1
-2.6
1yr
-48.6
-62.7
Price Vs. Sensex (Rebased values)
200
150
100
50
0
Apr-10 May-11 Jun-12
OBC
Jul-13
BSE Sensex
Source: PhillipCapital India Research
Other Key Ratios
Rs mn
FY13 FY14E
FY15E
Pre-prov ROE (%)
32.1
29.5
29.4
Pre-prov ROA (%)
2.0
1.7
1.7
Net Profit
13279 12065
14182
% growth
16.3
-9.1
17.5
EPS (Rs)
45.5
41.4
48.4
Adj BVPS (Rs)
339
339
355
ROE (%)
11.6
9.8
10.6
P/E (x)
3.4
3.7
3.2
Adj P/BV (x)
0.5
0.5
0.4
Source: PhillipCapital India Research Est.
Manish Agarwalla (+ 9122 6667 9962)
magarwalla@phillipcapital.in
Sachit Motwani, CFA, FRM (+ 9122 6667 9953)
smotwani@phillipcapital.in
Please refer to Disclosures and Disclaimers at the end of the Research Report.
9 March 2016 / INDIA EQUITY RESEARCH / OBC QUARTERLY UPDATE
Result Update
(Rs mn)
Interest earned
Interest expended
Net interest income
Net interest margins
Non interest income
Total Income
Total operating expenses
Payroll costs
Others
Pre-provision Profit
Provisions & Contingencies
% Operating income
PBT
Provision for Taxes
% of PBT
Net Profit
Equity
EPS, Rs
Advances
Deposits
Advances / Deposits (%)
Gross NPAs
Gross NPAs (%)
Net NPAs
Net NPAs (%)
CAR – Total
Source: Company, PhillipCapital India Research
– 2 of 6 –
Q2FY14
46,758
33,949
12,809
2.84
3,119
15,928
7,677
4,461
3,216
8,251
5505
66.7
2,746
232
8.4
2,514
2,918
12.1
Q2FY13
44,146
32,575
11,571
2.79
4,068
15,639
6,427
3,665
2,762
9,212
4599
49.9
4,614
1,592
34.5
3,022
2,918
10.4
YoY Growth
5.9
4.2
10.7
0.0
-23.3
1.8
19.5
21.7
16.4
-10.4
19.7
1,283,535
1,751,531
73.3
48871
3.77
34229
2.7
11.4
1,178,214
1,641,745
71.8
34656
2.92
23934
2.0
12.1
8.9
6.7
1.5
41.0
0.9
43.0
0.7
-0.6
-40.5
-85.5
-16.8
0.0
16.9
9 March 2016 / INDIA EQUITY RESEARCH / OBC QUARTERLY UPDATE
FINANCIALS
Income Statement
Y/E Mar, Rs mn
Interest on Loans
Interest on Investments
Others
Total Interest Earned
Total Interest Expended
Net Interest Income
Total non interest income
Total Income
Personnel Expenses
Other Expenses
Total Op expenses
Net Inc (Loss) before prov
Provision for NPAs
Provision for inv deprn
Net Inc (Loss) before tax
Provision for Income Tax
Net Profit
Valuation Ratios
FY12
FY13E
FY14E
FY15E
120,746
36,709
693
158,149
115,991
42,158
12,402
54,560
13,568
9,586
23,155
31,406
14,266
2,883
14,258
2,842
11,416
137,581
38,538
929
177,048
130,036
47,012
16,547
63,559
15,761
10,891
26,652
36,907
22,288
-742
15,361
2,081
13,279
156,842
43,163
1,022
201,027
149,767
51,259
15,572
66,831
18,125
12,320
30,445
36,387
21,173
500
14,714
2,648
12,065
177,231
48,342
1,124
226,698
169,385
57,313
16,632
73,945
20,844
13,942
34,786
39,159
20,750
-500
18,909
4,727
14,182
FY12
FY13E
FY14E
FY15E
Cash & Bal with RBI
Loans, Adv & Int accrued
Investments
Fixed Assets (Net)
Other assets
Total Assets
87,270
1,119,777
531,430
14,207
22,663
1,775,346
85,896
1,289,551
596,040
12,274
23,211
2,006,972
94,569
1,451,383
660,832
13,074
24,371
2,244,230
106,058
1,669,091
748,089
13,874
25,590
2,562,712
Liabilities
Share capital
Reserves and Surplus
Revaluation Reserves
Hybrid Capital
Debt
Borrowing
Total Deposits
Other liab incld prov
Total Liabilities
2,918
107,643
8,864
8,500
22,000
22,090
1,566,062
37,269
1,775,346
2,918
116,263
8,575
8,500
32,250
36,043
1,760,418
42,006
2,006,972
2,918
124,914
8,580
8,500
37,250
40,368
1,968,689
53,011
2,244,230
2,928
135,671
8,590
8,500
42,250
45,213
2,259,753
59,808
2,562,712
Source: Company, PhillipCapital India Research
FY13E
FY14E
FY15E
29.5
10.7
1.9
0.7
39.1
7.9
409.3
319.9
32.1
11.6
2.0
0.7
45.5
9.2
437.9
338.8
29.5
9.8
1.7
0.6
41.4
10.0
467.5
339.2
29.4
10.6
1.6
0.6
48.4
10.0
502.8
355.2
9.5
7.6
2.54
0.5
3.3
43.8
1.4
58.6
19.9
9.5
7.5
2.53
0.5
3.1
43.2
1.4
59.1
13.5
9.6
7.7
2.45
0.5
3.1
47.0
1.5
59.5
18.0
9.6
7.7
2.42
0.5
3.5
48.7
1.5
59.9
25.0
3.2
2.2
3.2
2.3
3.6
2.9
3.7
3.0
16.8
5.5
12.1
7.6
0.9
14.3
22.4
(30.0)
(24.0)
15.2
12.2
12.4
7.0
11.5
5.5
15.1
7.7
16.3
12.5
10.9
11.8
6.8
9.0
10.0
14.2
(4.2)
(9.1)
15.0
13.2
14.8
7.9
11.8
10.0
14.3
28.5
17.5
Asset / Liability Profile
Avg CASA/ Deposits (%)
Avg Adv / Avg Dep (%)
Avg Invst / Avg Dep (%)
Incr Adv / Deposits (%)
Avg Cash / Avg Dep (%)
24.2
68.3
34.9
94.8
6.9
24.3
70.1
33.9
87.4
5.2
24.5
71.0
33.7
77.7
4.8
24.4
71.1
33.3
74.8
4.7
Capital Adequacy Ratio:
Tier I (%)
Internal Capital Generation rate (%)
NNPAs to Equity (%)
12.7
10.1
8.9
20.6
12.0
9.2
9.6
22.7
11.7
8.8
7.7
30.2
11.1
8.3
8.8
33.6
Revenue Analysis
Interest income on IBA (%)
Interest cost on IBL (%)
NIM on IBA / AWF (%)
Core fee Inc / AWF (%)
Portfolio gains / Total Inc (%)
Op.Exp / TI (%)
Op.Exp / AWF (%)
Employee exps / Op exps (%)
Tax / Pre-tax earnings (%)
Balance Sheet
Y/E Mar, Rs mn
FY12
Earnings and Valuation Ratios
Pre-provision Operating RoAE (%)
RoAE (%)
Pre-provision Operating ROA (%)
RoAB (%)
EPS (Rs.)
Dividend per share (Rs.)
Book Value (Rs.)
Adj BV (Rs.)
Asset Quality
GNPAs / Gr Adv (%)
NNPAs / Net Adv (%)
Growth Ratio
Loans (%)
Investments (%)
Deposits (%)
Networth (%)
Net Int Income (%)
Non-fund based income (%)
Non-Int Exp (%)
Profit Before Tax (%)
Net profit (%)
– 3 of 6 –
9 March 2016 / INDIA EQUITY RESEARCH / OBC QUARTERLY UPDATE
Recommendation Chart
450
400
B (TP 450)
350
B (TP 350)
300
250
B (TP 395)
B (TP 350)
B (TP 350)
B (TP 350)
200
B (TP 350)
150
100
1/3/2011
5/30/2011 10/21/2011 3/16/2012
Source: PhillipCapital India Research
– 4 of 6 –
8/7/2012
1/3/2013
5/29/2013 10/23/2013
9 March 2016 / INDIA EQUITY RESEARCH / OBC QUARTERLY UPDATE
Management
Vineet Bhatnagar (Managing Director)
Jignesh Shah (Head – Equity Derivatives)
(91 22) 2300 2999
(91 22) 6667 9735
Research
Automobiles
Deepak Jain
(9122) 6667 9758
Engineering, Capital Goods
Ankur Sharma
(9122) 6667 9759
Pharma
Surya Patra
(9122) 6667 9768
Banking, NBFCs
Manish Agarwalla
Sachit Motwani, CFA, FRM
(9122) 6667 9962
(9122) 6667 9953
Infrastructure & IT Services
Vibhor Singhal
Varun Vijayan
(9122) 6667 9949
(9122) 6667 9992
Retail, Real Estate
Abhishek Ranganathan, CFA
Neha Garg
(9122) 6667 9952
(9122) 6667 9996
Consumer, Media, Telecom
Naveen Kulkarni, CFA, FRM
Ennette Fernandes
Vivekanand Subbaraman
(9122) 6667 9947
(9122) 6667 9764
(9122) 6667 9766
Metals
Dhawal Doshi
Dharmesh Shah
(9122) 6667 9769
(9122) 6667 9974
Quant
Shikha Khurana
(9122) 6667 9948
Sr. Manager – Equities Support
Rosie Ferns
(9122) 6667 9971
Mayur Shah (Execution)
(9122) 6667 9945
Cement
Vaibhav Agarwal
Economics
Anjali Verma
Mid-caps
Kapil Bagaria
(9122) 6667 9965
Oil&Gas, Agri Inputs
Gauri Anand
Deepak Pareek
Saurabh Rathi
(9122) 6667 9943
(9122) 6667 9950
(9122) 6667 9951
Dilesh Doshi (Sales Trader)
Suniil Pandit (Sales Trader)
Rajesh Ashar (Sales Trader)
(9122) 6667 9747
(9122) 6667 9745
(9122) 6667 9748
(9122) 6667 9967
(9122) 6667 9969
Sales & Distribution
Kinshuk Tiwari
Ashvin Patil
Shubhangi Agrawal
Kishor Binwal
Sidharth Agrawal
Dipesh Sohani
(9122) 6667 9946
(9122) 6667 9991
(9122) 6667 9964
(9122) 6667 9989
(9122) 6667 9934
(9122) 6667 9756
Contact Information (Regional Member Companies)
SINGAPORE
Phillip Securities Pte Ltd
250 North Bridge Road, #06-00 Raffles City Tower,
Singapore 179101
Tel : (65) 6533 6001 Fax: (65) 6535 3834
www.phillip.com.sg
MALAYSIA
Phillip Capital Management Sdn Bhd
B-3-6 Block B Level 3, Megan Avenue II,
No. 12, Jalan Yap Kwan Seng, 50450 Kuala Lumpur
Tel (60) 3 2162 8841 Fax (60) 3 2166 5099
www.poems.com.my
HONG KONG
Phillip Securities (HK) Ltd
11/F United Centre 95 Queensway Hong Kong
Tel (852) 2277 6600 Fax: (852) 2868 5307
www.phillip.com.hk
JAPAN
Phillip Securities Japan, Ltd
4-2 Nihonbashi Kabutocho, Chuo-ku
Tokyo 103-0026
Tel: (81) 3 3666 2101 Fax: (81) 3 3664 0141
www.phillip.co.jp
INDONESIA
PT Phillip Securities Indonesia
ANZ Tower Level 23B, Jl Jend Sudirman Kav 33A,
Jakarta 10220, Indonesia
Tel (62) 21 5790 0800 Fax: (62) 21 5790 0809
www.phillip.co.id
CHINA
Phillip Financial Advisory (Shanghai) Co. Ltd.
No 550 Yan An East Road, Ocean Tower Unit 2318
Shanghai 200 001
Tel (86) 21 5169 9200 Fax: (86) 21 6351 2940
www.phillip.com.cn
THAILAND
Phillip Securities (Thailand) Public Co. Ltd.
15th Floor, Vorawat Building, 849 Silom Road,
Silom, Bangrak, Bangkok 10500 Thailand
Tel (66) 2 2268 0999 Fax: (66) 2 2268 0921
www.phillip.co.th
FRANCE
King & Shaxson Capital Ltd.
3rd Floor, 35 Rue de la Bienfaisance
75008 Paris France
Tel (33) 1 4563 3100 Fax : (33) 1 4563 6017
www.kingandshaxson.com
UNITED KINGDOM
King & Shaxson Ltd.
6th Floor, Candlewick House, 120 Cannon Street
London, EC4N 6AS
Tel (44) 20 7929 5300 Fax: (44) 20 7283 6835
www.kingandshaxson.com
UNITED STATES
Phillip Futures Inc.
141 W Jackson Blvd Ste 3050
The Chicago Board of Trade Building
Chicago, IL 60604 USA
Tel (1) 312 356 9000 Fax: (1) 312 356 9005
AUSTRALIA
PhillipCapital Australia
Level 37, 530 Collins Street
Melbourne, Victoria 3000, Australia
Tel: (61) 3 9629 8380 Fax: (61) 3 9614 8309
www.phillipcapital.com.au
SRI LANKA
Asha Phillip Securities Limited
Level 4, Millennium House, 46/58 Navam Mawatha,
Colombo 2, Sri Lanka
Tel: (94) 11 2429 100 Fax: (94) 11 2429 199
www.ashaphillip.net/home.htm
INDIA
PhillipCapital (India) Private Limited
No. 1, C-Block, 2nd Floor, Modern Center , Jacob Circle, K. K. Marg, Mahalaxmi Mumbai 400011
Tel: (9122) 2300 2999 Fax: (9122) 6667 9955 www.phillipcapital.in
– 5 of 6 –
9 March 2016 / INDIA EQUITY RESEARCH / OBC QUARTERLY UPDATE
Disclosures and Disclaimers
PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives and Private Client Group. This report has been prepared by
Institutional Equities Group. The views and opinions expressed in this document may or may not match or may be contrary at times with the views, estimates, rating, target price of the
other equity research groups of PhillipCapital (India) Pvt. Ltd.
This report is issued by PhillipCapital (India) Pvt. Ltd. which is regulated by SEBI. PhillipCapital (India) Pvt. Ltd. is a subsidiary of Phillip (Mauritius) Pvt. Ltd. References to "PCIPL" in this report
shall mean PhillipCapital (India) Pvt. Ltd unless otherwise stated. This report is prepared and distributed by PCIPL for information purposes only and neither the information contained herein
nor any opinion expressed should be construed or deemed to be construed as solicitation or as offering advice for the purposes of the purchase or sale of any security, investment or
derivatives. The information and opinions contained in the Report were considered by PCIPL to be valid when published. The report also contains information provided to PCIPL by third
parties. The source of such information will usually be disclosed in the report. Whilst PCIPL has taken all reasonable steps to ensure that this information is correct, PCIPL does not offer any
warranty as to the accuracy or completeness of such information. Any person placing reliance on the report to undertake trading does so entirely at his or her own risk and PCIPL does not
accept any liability as a result. Securities and Derivatives markets may be subject to rapid and unexpected price movements and past performance is not necessarily an indication to future
performance.
This report does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors must
undertake independent analysis with their own legal, tax and financial advisors and reach their own regarding the appropriateness of investing in any securities or investment strategies
discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. In no circumstances it be used or considered as an offer to
sell or a solicitation of any offer to buy or sell the Securities mentioned in it. The information contained in the research reports may have been taken from trade and statistical services and
other sources, which we believe are reliable. PhillipCapital (India) Pvt. Ltd. or any of its group/associate/affiliate companies do not guarantee that such information is accurate or complete
and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice
Important: These disclosures and disclaimers must be read in conjunction with the research report of which it forms part. Receipt and use of the research report is subject to all aspects of
these disclosures and disclaimers. Additional information about the issuers and securities discussed in this research report is available on request.
Certifications: The research analyst(s) who prepared this research report hereby certifies that the views expressed in this research report accurately reflect the research analyst’s personal
views about all of the subject issuers and/or securities, that the analyst have no known conflict of interest and no part of the research analyst’s compensation was, is or will be, directly or
indirectly, related to the specific views or recommendations contained in this research report. The Research Analyst certifies that he /she or his / her family members does not own the
stock(s) covered in this research report.
Independence: PhillipCapital (India) Pvt. Ltd. has not had an investment banking relationship with, and has not received any compensation for investment banking services from, the subject
issuers in the past twelve (12) months, and PhillipCapital (India) Pvt. Ltd does not anticipate receiving or intend to seek compensation for investment banking services from the subject
issuers in the next three (3) months. PhillipCapital (India) Pvt. Ltd is not a market maker in the securities mentioned in this research report, although it or its affiliates may hold either long or
short positions in such securities. PhillipCapital (India) Pvt. Ltd does not hold more than 1% of the shares of the company(ies) covered in this report.
Suitability and Risks: This research report is for informational purposes only and is not tailored to the specific investment objectives, financial situation or particular requirements of any
individual recipient hereof. Certain securities may give rise to substantial risks and may not be suitable for certain investors. Each investor must make its own determination as to the
appropriateness of any securities referred to in this research report based upon the legal, tax and accounting considerations applicable to such investor and its own investment objectives or
strategy, its financial situation and its investing experience. The value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by
other financial, economic or political factors. Past performance is not necessarily indicative of future performance or results.
Sources, Completeness and Accuracy: The material herein is based upon information obtained from sources that PCIPL and the research analyst believe to be reliable, but neither PCIPL nor
the research analyst represents or guarantees that the information contained herein is accurate or complete and it should not be relied upon as such. Opinions expressed herein are current
opinions as of the date appearing on this material and are subject to change without notice. Furthermore, PCIPL is under no obligation to update or keep the information current.
Copyright: The copyright in this research report belongs exclusively to PCIPL. All rights are reserved. Any unauthorized use or disclosure is prohibited. No reprinting or reproduction, in whole
or in part, is permitted without the PCIPL’s prior consent, except that a recipient may reprint it for internal circulation only and only if it is reprinted in its entirety.
Caution: Risk of loss in trading in can be substantial. You should carefully consider whether trading is appropriate for you in light of your experience, objectives, financial resources and other
relevant circumstances.
For U.S. persons only: This research report is a product of PhillipCapital (India) Pvt Ltd. which is the employer of the research analyst(s) who has prepared the research report. The research
analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker-dealer and therefore the analyst(s) is/are
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This report is intended for distribution by PhillipCapital (India) Pvt Ltd. only to "Major Institutional Investors" as define d by Rule 15a-6(b)(4) of the U.S. Securities andExchange Act, 1934 (the
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as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S.
person, which is not the Major Institutional Investor.
In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major
Institutional Investors, PhillipCapital (India) Pvt Ltd. has entered into an agreement with a U.S. registered broker-dealer, Marco Polo Securities Inc. ("Marco Polo").Transactions in securities
discussed in this research report should be effected through Marco Polo or another U.S. registered broker dealer
PhillipCapital (India) Pvt. Ltd.
Registered office: 2nd Floor, C-Block, Modern Centre, Mahalaxmi, Mumbai – 400011
– 6 of 6 –