OBC: Edelweiss Diwali Muharat Fundamental Pick

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OBC: Edelweiss Diwali Muharat Fundamental Pick


• Oriental Bank of Commerce is a mid‐sized PSU bank, with the 11th largest branch network and 10th
largest asset book among Indian Banks. Historically, the bank had a strong presence in northern and
western India and the merger of Global Trust Bank (then roughly 15% of the size of OBC) provided it
the southern presence. The bank has over 1,300 branches across India, all of which are under core
banking solution.



• We believe that the current stage of economic growth in India, where savings and capital formation
are at ~34% of GDP, offers serious opportunities in financial intermediation. Core to our hypothesis
is our belief that, over the next ten years nominal GDP (excluding agriculture) is expected to grow at
~13%, and revenues from the financial services sector (which would lead this growth) are expected
to grow at 22% to ` 266.4 trillion by FY20E.

• The bank’s 1QFY11 exhibited strong core operating performance. The margins continued to surprise
positively. Though, the margins are believed to have peaked at current level. Delinquencies were
much below expectations, and the bank surprised on asset quality too. The current performance has
improved the bank’s RoEs to 17.5% over the next two years on the back of 23% CAGR in loan book;
we expect 25% CAGR in earnings over FY10‐12.

• The stock is trading at 1.3x FY12E book and 6.9x earnings. We continue to like improvement in
metrics, though sustainability of NIMs will be a key monitor able.
• We believe ORIBAN is a ‘BUY’ at Current Market Price of ` 494.