Accumulate Bank of Baroda; target of Rs 864: Angel Broking

“Bank of Baroda (BoB) reported a moderate performance on the net profit front during 2QFY2013, with a growth of 11.6% yoy to Rs1,301cr. Even on the operating front, the bank witnessed a moderate performance, with growth of around 11% each in the NII and pre-provisioning profits. The asset quality pressure continued for the bank, as slippages remained at elevated levels.”

“The bank witnessed a healthy growth in its balance sheet during 2QFY2013, with advances and deposits registering a growth of 22.2% and 24.0% yoy, respectively. Healthy advance growth was aided by a strong 33.4% yoy growth in the overseas loan book (partly due to INR depreciation). The bank’s domestic CASA growth remained moderate at 11.7% yoy. The bank’s domestic yield on advances improved by 10bp qoq to 11.8%, while domestic cost of deposits increased by 6bp qoq to 7.4%, which led the domestic NIM to remain flattish at 3.2%. The bank reported a subdued performance on the non-interest income (excluding treasury) front, with a decline of 1.1% yoy, on account of a sharp fall in recoveries to Rs65cr (Rs122cr in 2QFY2012) and 1% yoy decline on the fee income front. Trading profits (treasury) came in at Rs112cr compared to Rs10cr in 2QFY2012. On the asset quality front, the bank witnessed continued pressures, with gross and net NPA levels rising by 10.5% and 29.3% qoq, respectively, on an absolute basis. Annualized slippage ratio remained at elevated levels of 2.0% compared to 1.8% in 1QFY2013 and 2.3% in 4QFY2012. Though gross and net NPA ratios at 2.0% and 1.8%, have increased sequentially by 14 and 17bp respectively, but are still far lower than other large PSU banks. Additionally, the bank restructured domestic loans worth Rs993cr (higher than Rs771cr restructured during 1QFY2013), thereby taking its cumulative outstanding domestic restructured book to Rs16,680cr. PCR for the bank dipped significantly by 330bp to 75.7%.”

“BoB has been rerated in recent years due to healthy improvement in its core profitability. The bank is currently trading at valuations of 0.9x FY2014E ABV. We maintain our Accumulate recommendation on the stock with a target price of Rs864,” says Angel Broking research report.

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