Accumulate Bank of Baroda; target Rs 881: Angel Broking

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Accumulate Bank of Baroda; target Rs 881: Angel Broking

Angel Broking is bullish on Bank of Baroda (BOB) and has recommended accumulate rating on the stock with a target price of Rs 881 in its November 1, 2011 research report.

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Angel Broking is bullish on Bank of Baroda (BOB) and has recommended accumulate rating on the stock with a target price of Rs 881 in its November 1, 2011 research report.

"Bank of Baroda reported reasonable 14.4% yoy growth (for 2QFY2012) in its net profit to Rs 1,166cr, above our estimate of Rs 1,088cr, primarily due to considerably better operating income than built in by us, which was largely offset by higher provisioning expenses. Sequential expansion in NIM coupled with persistence of healthy asset-quality trends were the key positive takeaways from the results."

"Sequential expansion in NIM coupled with persistence of healthy asset-quality: For 2QFY2012, the bank's overall business momentum remained moderate, with advances growing by 2.9% qoq (up 23.9% yoy) and deposits increasing by 5.2% qoq (22.1% yoy). Global saving account deposits growth was relatively better at 15.5% yoy. However, slower (5.7% yoy) growth in current account deposits led to a 220bp yoy compression in calculated global CASA ratio to 27.4%. The sharp 91bp qoq expansion in yield on advances vis-à-vis a 43bp qoq rise in cost of deposits led to a 28bp qoq expansion in reported domestic NIM to 3.7%. Fee-based income rose reasonably by 13.2% yoy. Recoveries from written-off accounts witnessed a robust 76.4% yoy rise to Rs 122cr during 2QFY2012. On the asset-quality front, the bank continued to surprise positively with annualized slippage ratio in check at 1.0%. Absolute amount of gross NPAs declined on a qoq basis, albeit marginally. Gross and net NPA ratios remained largely flat on a sequential basis at 1.4% and 0.5%, respectively. Provisioning expenses were considerably higher than expected as the bank chose to maintain its provision coverage ratio (including technical write-offs) at elevated levels of 82.0%."

"The stock is trading at 1.1x FY2013E ABV. Historically, the stock has traded at 0.8x-1.3x one-year forward P/ABV multiple, with a five-year median of 1.0x, but it has been rerated over the past two years to a 1.3x average on the back of the bank's consistent improvement in profitability, underpinned by fruitful investments in channel modernisation, healthy CASA and balance sheet growth and declining operating expenses (1.5% of avg. assets in FY2011). Post the recent run-up in the stock after the announcement of the results, we recommend an Accumulate stance on the stock with a target price of Rs 881," says Angel Broking research report.

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To read the full report click on the attachment