Jan 28, 2013, 12.26 PM | Source: Moneycontrol.com
Nirmal Bang has maintained hold rating on Oriental Bank of Commerce (OBC) with a target price of Rs 376 in its January 25, 2013 research report.
, Nirmal Bang |
"OBC's operating performance for Q3FY13 was slightly below estimates. Although Net interest income improved QoQ driven by lower cost of deposits; non-interest income declined sequentially due to lower recovery from written off accounts limiting the growth in core earnings. Higher provisions (+31.3% QoQ and 58.5% YoY) lead to 8% YoY decline in net profit at Rs 326.4 cr. The bank adopted a prudent approach and provided Rs 78 cr to account for the increased provisioning norms on restructured books from 2% to 2.75% in one shot and provided Rs 30 cr on employee wage revision.
The bank witnessed some stress on its asset quality with gross NPA witnessing an increase on sequential basis; after witnessing an improvement for last two quarters. However, the increase in slippages has been on expected lines. Going forward, with an expected improvement in the recovery efforts of the bank and control over fresh slippages (close to peaking out), Management expects Gross NPAs to show a declining trend. The Management has so far been successful in focusing on areas like retail lending, CASA accretion leading to higher NIMs, improving the asset quality of the bank with focus on recoveries.
We believe that all these efforts will yield results in the bank’s performance with an improvement in the economic scenario. We still remain concerned about the expected restructuring (~Rs 2000-2200 cr) which will come in Q4FY13. Nevertheless considering the structural improvements taking place in the balance sheet, we expect the bank’s profitability to grow at 16.0% CAGR over FY12-FY14E. At CMP, the stock is trading at 0.96x and 0.88x FY13E and FY14E Adj BVPS and 7.06x and 6.27x FY13E and FY14E EPS respectively. We recommend to HOLD the stock and BUY at dips with a target price of Rs 376 (1.0 FY14E BV) indicating potential upside of 13.9% from current levels," says Nirmal Bang research report.
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