OBC: Looking forward to the merger - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

OBC: Looking forward to the merger

Oct 30, 2004

Performance Summary
Like in the June quarter, lower provisioning for NPAs has helped Oriental Bank of Commerce (OBC) to post a healthy improvement in its bottomline growth for 2QYF05. For the September quarter, while the bottomline has surged by 32%, the topline has risen by a marginal 6%. However, unlike the previous quarters, there has been a lackluster improvement in the bank's net interest income. This may indicate that the bank has not been able to significantly reduce its interest expenses during 2QFY05. There has been a significant drop in OBC's other income, and this has limited the bottomline growth.

(Rs m)2QFY042QFY05Change1HFY041HFY05Change
Income from Operations 8,015 8,526 6.4% 16,146 17,179 6.4%
Other Income 2,258 660 -70.7% 4,011 1,659 -58.7%
Interest Expenses 4,414 4,664 5.7% 9,333 9,545 2.3%
Net interest income 3,602 3,861 7.2% 6,813 7,634 12.1%
Other Expenses 1,548 1,657 7.1% 3,045 3,288 8.0%
Operating Profit 2,054 2,205 7.3% 3,768 4,345 15.3%
Operating Profit Margin (%)25.6%25.9% 23.3%25.3% 
Provisions and Contingencies 1,803 226-87.5% 3,027 448-85.2%
Profit before Tax 2,508 2,639 5.2% 4,752 5,556 16.9%
Tax 880 490-44.3% 1,701 1,602-5.8%
Profit after Tax/(Loss) 1,628 2,149 32.0% 3,052 3,954 29.6%
Net Profit Margin (%)20.3%25.2% 18.9%23.0% 
No. of Shares (m) 192.5 192.5   192.5 192.5  
Diluted Earnings per share*33.844.7 31.741.1 
P/E Ratio    5.8 
*(annualised)      

The zero net NPA bank
Nationalised in 1980, OBC is one of the most efficient public sector banks in the country. The bank has over 1,000 branches that are mainly concentrated in northern India. The bank is also the first public sector bank to have zero net NPAs in its books. OBC saw windfall gains in its portfolio of G-Secs and this helped the bank post strong growth in its bottomline performance in the last 3 years. Witnessing a slowdown in the wholesale (including corporate) lending market, OBC, like most other public sector banks, has chosen to concentrate on the fast growing retail market. It has met with reasonable amount of success. Recently, post the liquidation of Global Trust Bank (GTB), OBC has merged the operations of GTB with itself.

What has driven the performance in 1QFY05?
Advances growth strongOBC continues to maintain the growth momentum in advances it has shown in FY04. OBC's growth in advances in 2QFY05, stood at over 30%. The strong growth in advances has however not led to a similar growth in the topline. We do not have details on the yields on advances and investments but we believe that these yields are falling at a faster rate than in the previous quarter. We believe that retail advances growth has been the main growth driver for OBC's advances growth. No details for the same are available at the current moment.

Operating margins take a hit
The bank's interest expenses have risen marginally in the September quarter and this has led to a marginal rise in net interest income. Unlike the previous quarters the bank's interest expenses have risen in the September quarter, indicating a downward rigidity in the same. This means that going forward net interest margins may remain stagnant or may even witness a decline. Operating margins have also improved only marginally. Cost to income ratio has however risen to sharply to 37% compared to 26% in 2QFY04. This indicates that the bank has been facing pressure on this front. With an employee wage revision around the corner, we believe that public sector banks, including OBC, may face a pressure on the operating margins.

Lower provisioning saves day
While the breakup of other income is not available, we believe that the bank has not been able to book large profits on sale of investments as much as it did in the previous quarters and this has led to lower other income. lower provisioning has helped the bank to improve upon its bottomline growth. Considering that the bank had reported almost nil net NPA to advances ratio in FY04, we believe that lower provisioning may not affect its asset quality much. Also with higher recoveries going forward, the bottomline growth could be aided further. The net NPA to advances ratio is still nil indicating the strong asset quality of the bank.

What to expect?
At the current market price of Rs 239, OBC is trading at a price to adjusted book value ratio of 1.7 times. OBC is in the process of merging Global Trust Bank with itself and we believe this is likely to adversely impact the balance sheet of the bank. However considering the strong fundamentals of OBC we believe that the adverse impact would be a short-term affair. The bank continues to show continuous improvement in its core operations and this is likely to enthuse investors. However we would like to reiterate that the benefits of the merger with GTB will only occur over a period of time and hence investors have to be patient.


Equitymaster requests your view! Post a comment on "OBC: Looking forward to the merger". Click here!

  

More Views on News

ORIENTAL BANK Announces Quarterly Results (3QFY20); Net Profit Up 39.1% (Quarterly Result Update)

Jan 24, 2020 | Updated on Jan 24, 2020

For the quarter ended December 2019, ORIENTAL BANK has posted a net profit of Rs 2 bn (up 39.1% YoY). Sales on the other hand came in at Rs 47 bn (up 2.1% YoY). Read on for a complete analysis of ORIENTAL BANK's quarterly results.

ORIENTAL BANK Announces Quarterly Results (2QFY20); Net Profit Up 23.7% (Quarterly Result Update)

Oct 25, 2019 | Updated on Oct 25, 2019

For the quarter ended September 2019, ORIENTAL BANK has posted a net profit of Rs 1 bn (up 23.7% YoY). Sales on the other hand came in at Rs 49 bn (up 13.7% YoY). Read on for a complete analysis of ORIENTAL BANK's quarterly results.

How the YES Bank Collapse Unfolded - 10 Points (Sector Info)

Mar 9, 2020

A timeline of how YES Bank went from a stock market darling to a pariah.

Today's Stock Market Crash: 10 Points (Sector Info)

Mar 6, 2020

Top factors that dragged the markets lower today.

More Views on News

Most Popular

These 5 Smallcaps Deserve a Place in Your Coffee Can Portfolio (Profit Hunter)

Jul 28, 2020

When it comes to quality stocks, doing less is more.

Before You Buy Your First Electric Vehicle Consider Buying this Stock (Profit Hunter)

Jul 29, 2020

As competition intensifies in the electric vehicle space, only few will create huge wealth over the years.

Large Opportunities Are Coming Our Way

Aug 5, 2020

Kenneth Andrade tells us why stocks will bounce back strongly and what he's bullish on.

How to Buy Gold and Silver (Fast Profits Daily)

Jul 27, 2020

In this video I'll show you how to buy bullion the right way.

More

Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms

ORIENTAL BANK SHARE PRICE


Mar 20, 2020 (Close)

TRACK ORIENTAL BANK

  • Track your investment in ORIENTAL BANK with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks

ORIENTAL BANK - DEUTSCHE BANK COMPARISON

COMPARE ORIENTAL BANK WITH

MARKET STATS