Reduce Oriental Bank; target Rs 223: Dolat Capital

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Reduce Oriental Bank; target Rs 223: Dolat Capital

Dolat Capital is bearish on Oriental Bank of Commerce (OBC) and has recommended reduce rating on the stock with a target price of Rs 223 in its January 9, 2012 research report.

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Dolat Capital is bearish on Oriental Bank of Commerce (OBC) and has recommended reduce rating on the stock with a target price of Rs 223 in its January 9, 2012 research report.

"In Q3 FY12, Oriental Bank of Commerce (OBC)'s management expects credit and deposit growth in a range of 20% and 18% respectively compared to 21% and 19% in Q2 FY12. In deposits, CASA share is expected to be maintained at 23% level. OBC's business growth in Q2 FY12 grew around 19.6%. In Q2 FY12, SME and overall priority sectors were key loan growth drivers. Going forward, higher retail term deposit rates will lead to higher deposit mobilisation. Further, OBC is expected to witness strong growth across all credit segments. Over FY11-13, we estimate OBC's business CAGR at 17%, nearly in line with the industry. On business volume growth front, we expect credit and deposit growth of 18% and 17% respectively in FY12 and 17% in FY13."

"In Q3 FY12, NIM is expected to improve by 10 bps (QoQ) to 2.75% on the back of higher credit-deposit ratio and lesser write-back of interest income. In Q2 FY12, the bank reported margins of 2.64% compared to 3.3% in Q2 FY11 and 2.94% in Q1 FY12. We expect margin to fall by 60 bps to 2.24% (on yearly average basis) compared to the bank's management expectations of 20 bps fall to below 3% level compared to 3.2% in FY11. Overall, the bank's management expects gross NPA to remain stable in percentage terms on QoQ basis, but loan-restructuring to increase sharply in Q3FY12 and Q4FY12. Though, the bank's management is not sure of quantum of loan-restructuring to be done in Q3FY12, but they sounded quite negative on this front. Majority of large-ticket loan-restructuring would come from power (Rajasthan & Haryana SEBs), aviation (mainly Air India) sectors. Asset quality deteriorated over past couple of quarters as CBS implementation led to Rs 8bn of slippages in Q2 FY12. During Q2 FY12, the bank completed 100% migration of its loan book under the systemdriven NPA recognition platform as expected."

"The bank's exposure to power sector is close to Rs 135bn (13% of total advances), of which 71% is with central & state government projects and rest with private companies' projects. Total exposure to state electricity boards is Rs 81bn of which Rs 38bn is secured by state government guarantee. We expect business to grow 17% CAGR during FY11-13 and margins to hover around 2.2-2.3%. At current market price of Rs 218, the stock quotes at 0.67x adjusted book value FY13. We value the bank at Rs 223 at 0.7x ABV FY13; we rate the stock as a Reduce with a target of Rs 223," says Dolat Capital research report.

Institutional holding more than 40% in Indian cos

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To read the full report click on the attachment