Accumulate Bank of Baroda; target of Rs 950: Emkay

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Accumulate Bank of Baroda; target of Rs 950: Emkay

Emkay Global Financial Services is bullish on Bank of Baroda (BOB) and has recommended accumulate rating on the stock with a target of Rs 950 in its January 25, 2012 research report.

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Emkay Global Financial Services is bullish on Bank of Baroda (BOB) and has recommended accumulate rating on the stock with a target of Rs 950 in its January 25, 2012 research report.

"Bank of Baroda Q3FY12 NII at Rs26.6bn (up 16%yoy) and adjusted net profit at Rs12.9bn (up 21% yoy) was inline with our estimates. Strong growth in non-interest income (primarily from trading gains) and muted growth in operating expenses compensated for substantially higher NPA provisioning. Gross slippages during the quarter came in at Rs9.5bn (64% higher than Q2) which was higher driven by Rs5.0bn account in aviation. Resultant, the bank made NPA provisions of Rs5.1bn (up 71% qoq). Even on restructuring front, the bank restructured loans to the tune of Rs21.1bn (1.2% of loan book) during the quarter which included one large account in telecom. Domestic NIM at 3.0% were - 8bps qoq; international NIM on the other hand were +27bps qoq to 1.7%. On the balance sheet side: Loan portfolio expanded 26% yoy and 9% qoq. On the domestic front, growth remains healthy at 18%+ each on both loan / deposit front. The growth on international book appears seemingly higher primarily due to INR depreciation during the quarter. Adjusted for the same, growth on international front remains at steady 22%+ yoy growth levels on both loans / deposits front."

"Bank of Baroda remains adequately capitalized with total CAR at 13.45% including Tier I CAR 9.3% (excluding 9m profit). During the quarter, through better capital efficiencies and reduction in investment portfolio (MF instruments), CAR actually increased 72bps qoq. Additional, the bank is expecting capital infusion to the tune of Rs6.8bn from GoI by end- March 2012. We expect Bank of Baroda to report healthy 21% CAGR in loan / balance sheet over FY11-13E."

"Bank of Baroda continues to outperform its peers primarily due to its ability to deliver on balance sheet growth front with stable asset quality. While Q3 witnessed sudden spike in GNPA and also restructured assets, the same has been adequately provided through. We only find one negative in the numbers which is very poor recoveries and upgradation rates despite having NPLs lower than peers. The receoveries and upgradation rates as % of opening GNPLs is just at 29% annualized for M9FY12 compared to 40-50%+ for few of the peers. In case of any slippage shock, the cushion from the recoveries may not be available to the bank unlike its peers like PNB. This may also have implications for credit costs which have remained fairly low at an average of 0.3% for last six years. We drive comfort in the bank given its valuations of 1.3x/1.1x FY12E/FY13E ABV respectively with average RoE / RoA of 22%/1.2% over FY11-13E. Maintain ACCUMULATE with price target of Rs 950," says Emkay Global Financial Services research report.     

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To read the full report click on the attachment