Buy stocks of Oriental Bank; target of Rs 320

Oriental Bank of Commerce:-

“Oriental Bank of Commerce (OBC) reported 10% YoY and 48% QoQ PAT growth (24% above estimates), led by (1) higher recoveries from written-off accounts (INR2b), boosting non-interest income, and (2) sequential decline in slippages and higher MTM provision reversals, leading to lower provisions.”

“Reported margins improved 11bp QoQ to 2.79%, as the yield on funds improved 6bp QoQ and cost of funds declined 4bp QoQ, led by sequential decline in bulk deposits (declined 3.5% QoQ to INR415b). Asset quality surprised positively, as contrary to peers, gross slippages declined from INR13.2b in 4QFY12 to INR7b. GNPAs declined 6% QoQ, driven by (1) healthy recoveries and upgradations at ~INR4.3b, and (2) higher write-offs at INR4.8b v/s INR5.4b in 4QFY12. OBC restructured loans aggregating INR20.4b, resulting in net cumulative book of INR109b (9.6% of loans). Loans grew 16% YoY and remained flat QoQ at INR1.14t. While deposits grew 9.4% YoY. Core deposit grew by 20% YoY and 3% QoQ. CASA ratio remained stable QoQ at ~24%. We expect OBC to report RoA of ~0.7% and RoE of ~12.4% over FY13/14. The stock trades at 0.6x FY13E BV and 0.5x FY14E BV. Maintain Buy,” says Motilal Oswal research report.