Thursday, May 3, 2012


Dismal show on all counts…

The results were disappointing on all fronts including business growth, NIM and asset quality. Tax write-back of | 45.3 crore on account of MAT benefit and high w/offs provided some support to profitability. Even then, PAT was below estimates at | 264.9 crore (I-direct estimate: | 309.6 crore) with 20.6% YoY de-growth. Credit and deposit growth was subdued at 16.8% YoY and 12.2% YoY to | 111978 crore and | 155965 crore, respectively. Other income grew 14.6% YoY to | 343.8 crore led by strong growth in CEB fees of 21.9% YoY to | 219.3 crore. The C/I ratio was on the higher side at 46.6% in Q4FY12 (35.8% in Q4FY11) due to higher operating expense & subdued income growth. We are introducing FY14E with PAT of | 1711 crore, a CAGR of 22.4% over FY12-14E.

 Slippages uptrend continues keeping provisions at elevated levels…
Fresh slippages in Q4FY12 were high at | 1317.4 crore compared to | 698.8 crore in Q3FY12. This caused net provision towards NPA to rise from | 100 crore in Q3FY12 to | 500 crore in Q4FY12. Even after enormous write-offs worth | 541.2 crore, GNPA increased by | 348.2 crore sequentially to | 3580.5 crore. The GNPA and NNPA ratio stood at 3.2% and 2.2%, respectively. Restructuring of Air India (| 1616 crore) and Rajasthan SEB (| 1873 crore) during Q4FY12 took place, thereby increasing the outstanding restructured assets by | 3424.3 crore to | 9510 crore, constituting 8.5% of the credit book.

 Lacklustre NII growth hits profitability...
NII de-grew 6.3% QoQ to | 1068.1 crore (5.4% YoY growth) as yield on fund dipped 6 bps QoQ to 9.5% while cost of funds inched up 13 bps to 7.1%. NIM witnessed a dip of 22 bps to 2.7%. Interest income reversal of | 140 crore on account of slippages also added to the decline in NII.

High slippages and provisioning will keep profitability under pressure. A couple of stressed SEBs including UP and Punjab may undergo restructuring, thereby leading to lower profitability impacting return ratios. We estimate return ratios at RoA of 0.8% and RoE of 12.6% in FY14E. OBC has a high AFS portfolio of 28.6% with modified duration of 4.2 years leading to MTM loss on account of G-sec volatility. Our Gordon growth model leads us to a multiple of 0.7x FY14E ABV providing a TP of | 255. We recommend a HOLD rating on the stock with a negative bias.