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Motilal Oswal
OBC (Buy)
CMP: ₹271.70
Target: ₹400
Oriental Bank of Commerce’s 2QFY15 PAT of ₹290 crore (+16 per cent y-o-y) was 4 per cent above estimate as lower than expected non-interest income (mainly treasury gains and recovery from w/o accounts) and higher provisions (credit cost 1.3 per cent) were compensated by tax write-back of ₹280 crore on account of prior period adjustments. Slippages and restructuring during 2QFY15 were at ₹980 crore and ₹710 crore respectively. Business growth remains tepid as loans grew 8 per cent y-o-y (flat q-o-q) resulting in net interest income 4 per cent lower than expectation. Other highlights: 1) Net stress loans increased to 8.8 per cent (stable q-o-q); 2) Fees grew 9 per cent y-o-y largely in-line with balance sheet growth; 3) Recovery from written-off accounts stood at ₹62 crore in 2QFY15 (INR1.8b in 1Q). Valuation and view: Bank’s focus on consolidation of balance sheet (to conserve capital and focus on asset quality) and prudent utilisation of non-core income to clean up the balance sheet is comforting. Common equity tier I ratio (8.7 per cent) remains better than peers. Return on equities are expected to improve gradually with improvement in loan growth and asset quality.
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