OBC: Reaps seamless merger gains

ANALYSTS' CORNER

Angel Broking recommends a buy on Oriental Bank of Commerce (OBC) with a target price of Rs 375. The report states that OBC, a public sector bank, has a strong foothold in the northern region with a network of 1,132 branches, 165 extension counters, 490 ATMs and customer base of around 80 lakh.

Its merger with Global Trust Bank (GTB) has proved to be a blessing in disguise, as it has made inroads in the southern market and acquired a ready customer base and a presence in the retail business.

The report adds, "OBC has superior operational efficiency levels compared with its peers. It enjoys the distinction of being the first bank to achieve zero NPA levels. To leverage on the growth in banking space and to comply with the Basel II norms, OBC has geared up by strengthening its capital adequacy ratio. The OBC stock is poised for a re-rating as it successfully integrates its operations with GTB. The stock trades at 10.8x FY06E EPS of Rs 24.8.

Voltas: High growth visibility

ABN Amro Research maintains a buy on Voltas with the target raised to Rs 500. The report states that the company is showing high growth visibility and its multiple business drivers appear buoyant.

They expect an earnings CAGR of 49 per cent during FY05-08. Current valuations look undemanding and the stock is set to be re-rated. Its domestic and Middle East capex should drive projects business, which is its mainstay.

Being a part of the $14.5 billion Tata Group means Voltas does not have the constraint of its own balance-sheet size while bidding for large projects in the international markets.

"The domestic business should be driven by expansion in the services sectors such as IT, ITeS, retail and leisure. We see high earnings visibility in the agency business, which is the most profitable. Voltas also represents Lakshmi Machine Works in India. Lakshmi Machine Works' order book is full for the medium term and it derives 90 per cent of its revenues from India. We expect this division to show a CAGR of 28 per cent over FY05-08," the report adds.

Moreover, it is completing its last leg of restructuring. The stock trades at 8.1x FY07, at a significant discount to peers such as ABB, BHEL and L&T, which trade in the 17-21x band.

ONGC: Retains charm despite fire accident

DSP Merrill Lynch maintains its buy on ONGC. The report has raised earnings estimate for FY06 by seven per cent, FY07 by 21 per cent and FY08 by 10 per cent. FY06 domestic crude production has been cut by five per cent due to fire.

They conservatively expect the 123 kbpd production loss due to platform fire. Normal production will resume by September-October. FY07 production estimate remains unchanged.

"The Sakhalin JV (20 per cent ONGC stake) will start commercial production by third quarter of 2005. Sakhalin contributes 15 per cent to ONGC's total reserves. ONGC has also bid for Petrokazakhstan. Despite subsidy sharing and regulated gas prices, ONGC is the most attractive compared with its Asian peers on PE on 8.1x," the report adds.