Buy Bank of Baroda; target of Rs 1078: Sushil Finance

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Buy Bank of Baroda; target of Rs 1078: Sushil Finance

Sushil Finance is bullish on Bank of Baroda and has recommended buy rating on the stock with a target of Rs 1078 in its November 5, 2011 research report.

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Sushil Finance is bullish on Bank of Baroda and has recommended buy rating on the stock with a target of Rs 1078 in its November 5, 2011 research report.

"Bank of Baroda is one of the best managed PSB with a consistently strong business growth & superior asset quality. Considering its decent H1FY12 performance, we have largely retained our FY12 & FY13 estimates. During Q2FY12, NII grew by 26% YoY and stood at Rs.25.67 bn, on the back of a decent 24% YoY Advances growth & 22% YoY Deposits growth. Its term deposits profile saw a growth of 26% YoY while CASA grew by 13% YoY. However, CASA's share in total deposits declined by 202 bps YoY & 50 bps QoQ, now forming 27.4% of the total deposits. The Bank's non interest income saw a subdued growth of 8% YoY on lower treasury & fee income, while recoveries from written off accounts saw a growth of 76% YoY. Its operating expenses was largely contained with marginal increase of 9% YoY, mainly due to lower employee expenses (1% YoY decline). Its Cost to Income ratio stood at 35.3% in Q2FY12 as compared to 40.7% in Q2FY11, indicating a substantial improvement in productivity"

"The Bank's total provisions in Q2FY12 increased by 160.6% YoY to Rs.4.83 bn. This was largely driven by higher provisions on investment depreciation (Rs.1.45bn in Q2FY12 as against writeback of Rs.0.20 bn in Q2FY11), higher provision on fresh NPAs and revised provisioning norms mandated by RBI on NPAs & restructured assets. The Bank's Net Profit saw a growth of 14% and stood at Rs.11.67 bn for Q2FY12. In Q2FY12, Global NIMs improved by 5 bps YoY & 20 bps QoQ and stood at 3.07%, while Domestic NIMs improved by 5 bps YoY & 28 bps QoQ and stood at 3.67%, mainly due to efficient passing of rate hikes without compromising of Advances growth or the asset quality. Although the Bank has been able to improve NIMs to sub +3% levels after the steep fall seen on QoQ basis in Q1FY12, we still retain our estimate of 2.86% in FY12E given the challenging business environment."

"We expect its Advance & Deposit to grow by 18.5% & 17.8% in FY12E and 18% & 17.5% in FY13E, while its Net Profit to grow at 2% in FY12E & at 16% in FY13E. BOB currently trades at an attractive valuation of 1.2x FY13E ABV & 6.1x FY13E Earnings. We believe the stock can trade at 1.5x P/ABV given its sustainable 20% ROE. We maintain BUY with a price target of Rs 1078," says Sushil Finance research report.

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