Hold Oriental Bank; target of Rs 373: Unicon Investment

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Hold Oriental Bank; target of Rs 373: Unicon Investment

Unicon Investment has recommended hold rating on Oriental Bank of Commerce with a target of Rs 373, in its July 30, 2011 research report.

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Unicon Investment has recommended hold rating on Oriental Bank of Commerce with a target of Rs 373, in its July 30, 2011 research report.

"Oriental Bank of Commerce (OBC) Q1FY12 results were below our expectations with PAT declining by 2.3% to INR 3.5 bn on YoY basis. The net interest income (NII) declined by 3.6% to INR 10.8 bn on YoY basis, due to higher interest expenses. Non interest income grew by 50.8% from INR 3.2 bn in Q1FY12 on YoY basis. The cost to income ratio increased from 35.3% Q1FY11 to 40.2% in the Q1FY12. Advances growth grew by 14% YoY to INR 982 bn led by growth in SME advances (up 27% YoY) & Agriculture advances (up 34% YoY). Deposits grew by 17% to INR 1445 bn. However, pressure on CASA continued as the ratio declined to 23.2% in Q1FY12 from 24.6% in Q4FY11. Further, NIMs declined by ~40 bps to 2.94% on YoY basis, as costs of deposits increased 158 bps YoY vis-à-vis a 135 bps YoY increase in yield on advances."

"The Gross & Net NPA's increased to 2.07% & 1.09% from 1.74% & 0.72% on YoY basis respectively. The asset quality of the bank deteriorated sequentially with absolute Gross NPAs expanding by 6% QoQ and absolute Net NPAs by 13% QoQ. Total slippages during the quarter were at ~ INR 5026 mn. The provision coverage for the Q1FY12 stood at 75.08% vis-à-vis 80.39% in Q1FY11.The bank opened 23 new branches in Q1FY12. The capital adequacy ratio of the bank stood at 13.64%. Tier I and tier II capital were 10.77% and 2.87% respectively."

"OBC is expected to expand its branch network by opening ~120 branches in FY12. This would lead the CASA growth to reach ~25% in FY12E. The bank will also focus on Agriculture, Mid-Corporate, SME, Priority Sector and Retail Credit to augment its advances growth. At the CMP stock trades at 0.9x of its FY12E BV of INR 397. We have HOLD rating with a target price of INR 373," says Unicon Investment research report. 

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To read the full report click on the attachment