Aug 07, 2012 01:35 PM IST | Source:

Buy Bank of Baroda; target of Rs 780: Aditya Birla Money

Aditya Birla Money is bullish on Bank of Baroda (BOB) and has recommended buy rating on the stock with a target of Rs 780 in its August 1, 2012 research report.

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Aditya Birla Money is bullish on Bank of Baroda (BOB) and has recommended buy rating on the stock with a target of Rs 780 in its August 1, 2012 research report.

“Bank of Baroda, net profit after tax for the current quarter increased 10.3% YoY (decline of 25.0% QoQ) to `11388.6 mn from `10328.5 mn for Q1 FY12. The growth in PAT on YoY basis was mainly driven by 21.8% YoY increase in the NII at `27980.7 mn (led by robust growth in advances 23.0% YoY) and 20.3% YoY increase in other income (led by higher treasury gains and better recovery from written off accounts). Higher net income aided in better operational efficiency during the quarter at 36.9% down 80 bps YoY and 763 bps QoQ. However, higher provisions during the quarter (124.3% YoY) led by higher slippages (~12.6 bn) has moderated the growth in profit to some extent. Sequentially, the decline in profits was mainly led by flat NII growth coupled 14.1% decline in other income. Besides this there was a tax write back of ~`3.2 bn in Q4FY12 due to tax refund of `4 bn and higher contribution from the international business which are effectively taxed at lower rate, thus inflating the profit number last quarter.”

“Global Net Interest Margins (reported) declined both on a YoY basis and sequentially by 14 bps and 23 bps respectively to 2.73% driven by sharp decline in domestic NIMs by 17 bps and 22 bps on a YoY and QoQ basis respectively. The sharp decline in domestic NIM sequentially was due to one off in Q4FY12 (on a/c of interest reversal) coupled with 25 bps cut in base rate during the current quarter. On the flip side higher yield on investments both in the domestic and overseas book has provided some support to the margins. Going forward, the management expects the margins to remain at around current levels. Total business of the bank registered a robust growth of ~22.6% YoY (-0.5% QoQ) as at Q1FY13 (partly supported by robust growth in overseas book due to currency depreciation). Deposits grew by 22.3% YoY (-0.6% QoQ), whereas Net Advances grew by 23.0% YoY (-0.5% QoQ). Share of domestic CASA deposits registered a decline of ~95 bps QoQ from 33.2% to 32.2% mainly led by poor growth in current deposits during the quarter. Going forward, management expects the overall business growth to remain subdued given the deteriorating macro-economic environment.”

“The bank has witnessed sharp deterioration in its asset quality during the quarter. We believe with monsoon running into deficit, a part of bank’s agriculture portfolio (primarily short term crop loans) could come for restructuring in the coming quarters. This along with stress in some of the sectors like power, textiles, SMEs could further impact the bank’s asset quality going forward. Considering the possibility of higher incremental restructuring and risk of higher slippages in the restructured portfolio we have increased our provisioning assumptions for FY13E by 17.3%.”

“We estimate BoB to report an EPS CAGR of 15.9% over FY12-FY14E. ABV is estimated to grow at 17.4% CAGR during the same period. We have also reduced our target multiple from ~1.1x to ~0.9x (~20% discount to five year mean multiple of 1.1x) with a revised target price of `780.2 (`890.6 earlier), providing an upside potential of 18.9% from current levels,” says Aditya Birla Money research report.   

Non-Institutions holding more than 90% in Indian cos

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