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OBC: Growth oriented performance - Views on News from Equitymaster
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  • May 22, 2002

    OBC: Growth oriented performance

    Oriental Bank of Commerce (OBC) has reported commendable financial performance for the fourth quarter ended March 2002. The bank's interest income grew at a strong rate of 14% and operating profits jumped by 81% with improvement in interest margins and cost control measures.

    (Rs m) 4QFY01 4QFY02 Change FY01 FY02 Change
    Income from operations 7,104 8,067 13.5% 27,587 30,405 10.2%
    Other Income 792 1,910 141.3% 2,677 4,739 77.0%
    Interest expense 4,934 5,404 9.5% 19,681 20,684 5.1%
    Net interest income 2,170 2,663 22.7% 7,906 9,721 22.9%
    Other expenses 1,090 710 -34.8% 5,243 5,289 0.9%
    Operating Profit 1,081 1,953 80.7% 2,664 4,432 66.4%
    Operating Profit Margin (%) 15.2% 24.2%   9.7% 14.6%  
    Provisions and contingencies 1,705 2,507 47.0% 2,526 3,477 37.6%
    Profit before Tax 167 1,356 712.0% 2,815 5,694 102.3%
    Tax 111 718 547.4% 786 2,489 216.6%
    Extraordinary items - -   - -  
    Profit after Tax/(Loss) 56 638 1037.3% 2,029 3,206 58.0%
    Net profit margin (%) 0.8% 7.9%   7.4% 10.5%  
    No. of Shares (m) 192.5 192.5   192.5 192.5  
    Diluted Earnings per share* 1.2 13.3   10.5 16.6  
    P/E Ratio   3.1     2.5  

    During the year, the bank brought down its cost of funds, resulting in higher margins, which is reflected from a 23% rise in net interest income. Its cost to income ratio too declined to 37% in FY02 from 50% in FY01 due to savings on account of employee cost. In FY02, the bank wrote off VRS cost amounting to Rs 159 m which is included in other expenses.

    Contrary to the trend witnessed in the public sector banks, OBC's interest income from advances flared up by 20% in the fourth quarter. The bank managed to post a sharp rise in this revenue stream despite a slowdown in the industrial activity.

    Income breakup
    (Rs m) 4QFY01 4QFY02 Change FY01 FY02 Change
    Interest on advances 3,278 3,931 19.9% 12,027 14,159 17.7%
    Income from investments 3,447 3,928 14.0% 14,414 15,375 6.7%
    Interest on balance with RBI 231 146 -36.6% 940 808 -14.0%
    Others 148 61 -58.7% 207 63 -69.7%
    Total 7,104 8,067 13.5% 27,587 30,405 10.2%

    Taking advantage of the higher other income, the bank increased the amount for provisions on non-performing assets. OBC's net NPA to advances ratio which stood at 3.6% as on March 2001 is likely to come down with this higher provisioning.

    At the current market price of Rs 41, OBC is trading at a P/E of 3x and adjusted price to book value ratio of 0.6x. The bank's valuations are one the lowest compared to frontline public sector banks. OBC's slow absorption to technology and low visibility about future growth prospects is impacting its valuations.



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