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Oriental Bank of Commerce: Margins are likely to improve by 15 bps q-o-q

Motilal Oswal | Published: 11 Jul, 2012  | Source : | Follow Author | Add to my Favourites


- Motilal Oswal expects Oriental Bank of Commerce to post healthy loan growth of ~18% y-o-y. However deposit growth is likely to moderate to ~10% y-o-y, as the bank de-bulks its balance sheet. Sequential growth in loans and deposits is likely to remain moderate.

- Margins are likely to improve by ~15bp q-o-q
, as pressure on asset quality is expected to ease in 1QFY13 (high slippage in 4QFY12, led by one-offs, resulting in interest income reversals of Rs1.35b).

- Pressure on asset quality is likely to ease, with reduced slippages (slippages in 4QFY12 stood at Rs13b - annualized slippage ratio of 8.4%, led by four large corporate accounts).

- With pending restructuring in stressed sectors
(SEBs) and continued stress in the large corporate segment, restructuring is expected to remain high. In 4QFY12, Rs34b was added to the restructured book.

- The stock trades at 0.6x FY13E and 0.5x FY14E BV, and 5.2x FY13E and 4.5x FY14E EPS. Maintain Buy.

- Key things to watch for: (1) Performance on asset quality, especially on net slippages and restructured loans, (2) Margin movement, (3) Fee income growth (volatile in the last few quarters), (4) Decrease in bulk deposits.

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