Buy Oriental Bank of Commerce - Motilal Oswal

Oriental Bank of Commerce (OBC IN; Mkt Cap USD1.8b, CMP Rs322, Buy)

3QFY11 NIMs were down 20bp QoQ to 3.1% (up 10bp YoY) led by an increase in cost of deposits (up 20bp QoQ) and stable yields on QoQ basis.

Rising deposit rates and an increased proportion of bulk deposits/CDs (41.4% v/s 37% at the end of March 2010) resulted in a drop in NIMs.

Loans grew 3.8% QoQ and 16% YoY and deposits were up 2.8% QoQ. Moderation in loan growth was led by repayment of some short-term loans.

CASA deposits grew 20% YoY (2% QoQ) and CASA mix was stable at ~25%. Growth in savings deposits outpaced overall deposit growth at 28% YoY.

3QFY11 asset quality deteriorated sharply with GNPAs in absolute terms increasing 21% QoQ and NNPAs increased by 35%. Calculated PCR was 54%.

Slippages in 3QFY11 were high at Rs4.7b. Slippage ratio for the quarter was high at 2.25%. Of the total slippages, Rs2.2b was from restructured accounts and part (~40%) was technical in nature. The management expects strong recoveries and upgrades from these accounts over two quarters. The management guided for 18%+ loan growth for FY11. While sustaining operating parameters will be challenging, current valuation of 0.8x FY12E BV offers comfort. Buy.

Source : Equity Bulls

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