Oriental Bank of Commerce (OBC) - Rerating imminent

Q3FY10 results review and earnings revision - ICICI Securities

OBC is likely to see improvement in NIMs to 2.2-2.3% through FY11E (1.9-2% estimated earlier), led by large-scale deposits repricing, improving CASA and steady credit-to-deposit ratio. We see sustained, robust growth in fee income – insurance fees gaining significance; now 3.1% of 9MFY10 commission exchange & brokerage income (CEB) – with core banking solution (CBS) roll-out complete. Cost ratios should remain benign with cost-to-income at ~42% & cost-to-assets at 1.3% through FY12E. We derive greater asset quality comfort from prudent provisions and controlled slippages from restructured accounts. We raise FY10E & FY11E estimates 10% each. With RoEs estimated at +16%, we value the stock at 0.9x FY11E BV or Rs302/share, implying 13.5% upside. Reiterate BUY. Lower-than-anticipated margin traction and sharp rise in NPAs are downside risks.

Source : Equity Bulls

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