Q3 result review: BoB remains hold for Karvy & SBICap

State-owned Bank of Baroda 's third quarter (October-December) net profit dropped nearly 22 percent year-on-year to Rs 1,012 crore, dented by higher provisions against bad loans.

However, net interest income or the difference between interest earned and paid out upped 7 percent to Rs 2,840 crore. Other income fell nearly 27 percent to Rs 841 crore. Hatim Broachwala of Karvy told CNBC-TV18, the results of BoB were poor than expectations. The profits despite a lower tax rate were below expectations. Even on the asset quality front, the slippages were higher, he added. He further added they have a hold rating on the stock. “On the overall front, on overall provision coverage, on overall non performing assets (NPAs), numbers still remain better than other PSU banks. So we have a hold rating on the stock,” he asserted. Similarly, Divyanshi Dayanand, SBICap Securities also believes the numbers below expectations and said asset quality disappointed them the most. She told CNBC-TV18, profits too were much below our expectations, She further added, they still have a hold rating on the stock and might continue with that given the probability of the asset quality coming back on track few quarters down the line. Below is the edited transcript of Hatim Broachwala’s interview on CNBC-TV18 Q: You have got the key numbers, NII growth is just a mere eight percent and profit is down rather seminally, just at Rs 1,000 crore. What are your first thoughts, your price targets? Would you sell Bank of Baroda at current levels? A: The results are below expectations. On the credit front, it is around 14-15 percent and net interest margins (NIMs) are down on the domestic side sequentially by 15 basis points. As a result net interest income (NII) at seven percent is below our expectations. On profits front, despite a lower tax rate, the profitability which is around 25 percent is below our expectation. On the asset quality front, the slippages are pretty higher. We had a clue that slippages are going to be higher, not because of the change in the management as such but because of the overall environment. So, the results are poor than expectations. Q: So do you sell? You won’t have a price target immediately but have you a sell on the stock? A: No, we have a hold on the stock. Considering poor numbers of BoB; still on the overall front, on overall provision coverage, on overall NPAs, numbers still remain better than other PSU banks. So we have a hold rating on the stock. Q: I just wanted to take that point forward because their asset quality has worsened for the fourth consecutive quarter quite considerably especially for this quarter where the net non performing assets ( NPAs) are 41 percent, the gross NPAs on absolute basis are up 25 percent, even slippages are higher sequentially and the restructured assets too are higher sequentially. Where do you see respite coming in terms of asset quality? Do you think that they are going to match up with other PSU peers in terms of worsening asset quality or do you think that this is it for it? A: Probably we could see pain for one or two quarters more and then probably take a step later. I still don’t expect them to equalise to other PSU peers. They still remain better off compared to other larger players. Q: The other point which I wanted to bring up was basically what sort of valuations do you think Bank of Baroda should now trade at? It is currently trading at around maybe 1.2 times FY13 book. Do you see any sort of re-evaluation in terms of their valuations considering their numbers have been so bad for the fourth consecutive quarter? A: There could be some earnings downgrade as such after the results. We value it at its mean valuation which is 1X (one time) one year forward. So I think if you continue value on that level then it will continue to be a hold rating.