Buy Oriental Bank; target of Rs 325: Dolat Capital

Dolat Capital is bullish on Oriental Bank of Commerce (OBC) and has recommended buy rating on the stock with a target of Rs 325 in its July 31, 2012 research report.

“In Q1 FY13, Oriental Bank of Commerce’s (OBC) net interest income (NII) grew by 10.6% YoY to Rs 11.3bn-4% higher than our estimates of Rs 10.8bn. The bank’s margin increased to 2.79% from 2.68% in Q4 FY12, though declined from 2.94% level in Q1 FY12. Non-fund income grew by 26% YoY to Rs 4.1bn (primarily led by 15% YoY jump in fee income to Rs 1.7bn) ahead than our estimate of Rs 3.6bn which led to deviation at operating profit level. It reported operating profit of Rs 9bn compared to our estimates of Rs 8.3bn. The write-back of investment depreciation provision of Rs 1.3bn off-setted higher NPA provisioning and thereby aided bottom-line growth. Net profit grew by 10.3% YoY to Rs 3.9bn as against our estimates and market consensus of Rs 3.4bn.”

“OBC’s gross and net NPA declined by 6% QoQ to Rs 33.8bn and Rs 23bn respectively. The bank’s net slippages remained at Rs 2.8bn as against Rs 2.6bn in Q1FY12. Provision coverage ratio rose to 64.4% from 61.5% in Q4 FY12. The gross slippage ratio declined to 2.67% from 5.02% in Q4 FY12. However, as of end-Q1 FY13, the bank restructured loan book increased by 15% QoQ to Rs 110bn. Owing to the concerns on future balance sheet expansion, strain on margin and loan restructuring pipeline, we revise our earnings estimates downward by 16% and 5.7% for FY13 and FY14 respectively and decrease our target price by 8.4% to Rs 325. We reiterate our rating on the stock to Buy. At current price, it quotes at 0.7x and 0.6x ABV FY13 and FY14 respectively; based on our target price, the stock would quote at 0.86x adjusted book value FY14,” says Dolat Capital research report.  

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