Result Update: Oriental Bank of Commerce

(BSE: 500315 | NSE: ORIENTBANK | ISIN: INE141A01014)

Oriental bank of commerce (OBC) has reported a net loss of Rs. 99 crore in Q4FY08 against a profit of Rs.55 crore main on account of bank’s bold step of writing off next year’s balance of amalgamation loss also this quarter only. Total loss adjusted this quarter was Rs.304 crore and in full year was Rs. 488 crore. There has been some write back of provisioning which increased the PAT (before extraordinary item) by 75% yoy to Rs 204 crore. Operating profit was flat y-o-y but was up 10% q-o-q which showed signs of improving financials on a sequential basis. For full year FY08 PAT before extra-ordinary item went up marginally1.7% to Rs. 841 crore.

NII reported a yoy decline of 2.1% but reported a gain of 9% q-o-q. to Rs.437 crore Growth in advances has been strong at 20% y-o-y to Rs 54,485 crore and deposits grew 21% y-o-y to Rs.77587 crores. A dip in NIM to 2.34% from

2.4% was on account of higher cost of deposits rising to 7.08% from 7% cn a sequential basis. Bank has shed most of bulk deposits of Rs. 5000 crore that it raised in March’07. Yield on advances grew to 10.25%. Other income grew 12% y-o-y to Rs.160 crore in line with expectation but q-o-q basis it has fallen. We expect net interest income to grow at 15% in FY09E.

The growth in CASA ratio has been lower than expectations and now stands at 27%. The bank continues show impressive performance on the asset quality front with absolute Gross NPLs declining 12% YoY. GNPA has declined to 2.3%, but due to falling provision net NPA has grown to 1% from 0.7% on a sequential basis.

Valuations The stock is available at an attractive valuation of almost 0.9x its FY09E ABV. We believe the bank after wiping off legacy GTB losses, one year in advance, is now poised to take on a new path of business growth and high profitability. The stock though not best, is one of the cheapest available in the banking space and hence we rate the stock an outperformer with a revised target price of Rs.261, an upside of 27% over the time frame of 12 months.

ICICIdirect endeavours to provide objective opinions and recommendations. ICICIdirect assigns ratings to its stocks according to their notional target price vs current market price and then categorises them as Outperformer, Performer, Hold, and Underperformer. The performance horizon is 2 years unless specified and Outperformer: 20% or more;

Performer: Between 10% and 20%; Hold: +10% return; Underperformer: -10% or more.

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