Oriental Bank of Commerce (OBC) posted a disappointing set of numbers today with net interest income (NII) falling 3 percent to Rs 1,246 crore while adjusted profit after tax fell 15 percent to Rs 213.7 crore.
The bigger alarm was on the asset quality front with gross non-performing assets (GNPA) jumping from 4.33 percent to 4.74 percent while net NPA increased from 3.11 percent to 3.29 percent.
Discussing the results, Darpin Shah of HDFC Securities told CNBC-TV18’s Latha Venkatesh and Reema Tendulkar that while the increase in gross NPA and fall in adjusted profits was disappointing, the stock was still compelling from a valuation perspective, and that we would maintain a ‘buy’ as of now, subject to further details emanating from the numbers.
Below is the transcript of the interview on CNBC-TV18.
Latha: Your thoughts on Oriental Bank of Commerce’s numbers. You have coverage, do you have a view and you have a rating?
A: We have coverage on the stock. My first thought is it is slightly disappointing. There are two parameters. The gross NPA shot up by 11 percent on sequential basis to around Rs 66 billion – that is a negative surprise and in terms of profitability adjusted for tax writeback, the profit would have been further declining. So, these two are disappointing things.
Latha: Are you making it a sell?
A: At Rs 268, valuations are comforting for OBC. Among our coverage universe, it’s the most attractive stock at 0.7 times times FY16 book value vis-à-vis Union Bank of India at 1 and Allahabad Bank at 0.9. So valuations are compelling for OBC. We maintain a buy as of now. We will wait for further details in terms of slippages and restructuring.
Reema: Were you anticipating such a significant worsening in the asset quality and if you were not, would it change your assessment of what the asset quality picture will be for Oriental Bank of Commerce at least for the next few quarters?
A: Our estimates were slightly lower than the reported numbers. The reported number is roughly around 66 and we were expecting around 62.5-63 billion. As I mentioned two factors in terms of slippages and restructuring what has come up, we need to get that information and it will decide the further course.
If you see for the last two years the growth has been way below the industry levels that provide slight comfort in terms of asset quality going forward because last two years they have shown slippages of 0.5 percent whereas their loan book has not grown that sharply. So could provide some comfort.
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