Buy Oriental Bank of Commerce; target Rs 324: Nirmal Bang

Nirmal Bang's research report on Oriental Bank of Commerce (OBC)

"Oriental Bank of Commerce's operating performance for Q4FY13 was below estimates primarily due to higher provisions and stress on asset quality. Interest reversals on slippages impacted margins and therefore NIMs were flat sequentially. Higher operating cost (Rs 140 cr on employee wage revision) and higher provisions impacted the performance. However, tax write back helped the bank to report PAT of Rs 308 cr (down 5.7% QoQ and up 16.2% YoY). PAT for FY13 stood at Rs 1328 cr up by 16.3% YoY."

"The stock has been underperforming in the last one quarter despite the outperformance of the broader indices owing to the concerns relating to the bank's asset quality (high restructured book) and the lower return ratios. We believe that the current price factors in most of the concerns and the risk reward ratio turns favourable for the stock with limited downside from current levels. Considering the structural improvements taking place in the balance sheet, we expect the bank's profitability to grow at 18.8% CAGR over FY13-FY15E. At CMP, the stock is trading at 0.75x and 0.69x FY14E and FY15E Adj BVPS and 5.0x and 4.2x FY14E and FY15E EPS respectively. In view of the recent correction in the stock price, we recommend to BUY the stock with a target price of Rs 324 (0.9x FY14E BV) indicating potential upside of 20% from current levels," says Nirmal Bang research report.

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