Sell Oriental Bank; target of Rs 282: Dolat Capital

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Sell Oriental Bank; target of Rs 282: Dolat Capital

Dolat Capital is bearish on Oriental Bank and has recommended sell rating on the stock with a target of Rs 282 in its February 6, 2012 research report.

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Dolat Capital is bearish on Oriental Bank and has recommended sell rating on the stock with a target of Rs 282 in its February 6, 2012 research report.

"In Q3 FY12, Oriental Bank of Commerce's (OBC) net interest income (NII) grew by 10.7% YoY to Rs 11.4bn - 16.5% higher than our estimates of Rs 9.5bn. The bank's margin rose by 26bps QoQ to 2.9%; a positive surprise. The deviation at core income level was primarily due to higher than expected increase in Interest income on advances (44% YoY growth). The deviation at operating levels was mainly due to higher core and nonfund income which off-setted higher operating expenses and thereby resulted in higher than expected operating profit of Rss 8.3bn compared to our estimates of Rs 7.1bn. Higher provisioning on restructured accounts and investment depreciation (Rs 903mn as against Rs1mn in Q3 FY11) resulted in deviation at bottom-line level."

"On the bottom-line level, OBC reported Rs 3.5bn (13% YoY decline) as against our estimates of Rs 2.7bn and market consensus of Rs 3.2bn. The asset quality remains stable with net NPA ratio at 1.9% while gross NPA ratio at 2.92%. However, the restructuring book is expected to increase going forward. The management expects around Rs 35bn to come up for restructuring in Q4 FY12."

"Considering much better margin and stable gross NPL, we revise our earnings estimates upward by 24% and 36% for FY12 and FY13 respectively and target price by 26% to Rs 282. We reduce our rating to Sell due to sharp upward stock price movement. At the current price, the stock quotes at 0.8x FY13 ABV," says Dolat Capital research report.

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