Moneycontrol Bureau
Bank of Baroda shares plunged nearly 9 percent intraday Monday as December quarter earnings missed analysts' expectations, with subdued loan growth due to demonetisation and FCNR redemption. Asset quality improved during the quarter but slippages were high on sequential basis. Analysts expect asset quality pressure to continue in first half of FY18 as gross non-performing assets remained in double digits and slippages doubled.
Morgan Stanley is underweight on the stock, with reduced target at Rs 125 from Rs 135 as valuation is expensive in the context of weak earnings progression. Share price will fall relative to the industry over the next 30 days, it feels.
JPMorgan says margins in Q3 declined sharply as yields remained under pressure, while assigning underweight call on the stock with a target price at Rs 133.
Kotak has also maintained reduce rating as growth concerns are yet to be addressed.
Loan growth would be a disappointment as compared to investors' expectations and return on equity visibility beyond 12-14 percent by FY2019 still poses as a challenge, the brokerage house says. Kotak has increased target price to Rs 170 from Rs 160.
Macquarie has retained underperform rating on the stock, with reduced target at Rs 115 from Rs 116 following cut in FY17 EPS by 36 percent & FY18 by 8 percent.
However, CLSA has maintained its buy call on Bank of Baroda, with increased target price at Rs 225 from Rs 195, saying Q3 earnings missed estimates but stressed loans were below peers and bank is better than most PSU banks with respect to asset quality & capitalisation.
Key disappointment in Q3 was annualised delinquency ratio at 4 percent and higher-than-expected credit cost was a key drag on Q3 results, CLSA says.
The public sector lender turned profitable in October-December quarter, with net income at Rs 252.67 crore against big loss of Rs 3,342.04 crore in same quarter last year due to sharp fall in provisions. Other income and operating income also boosted bottomline.
Net interest income during the quarter grew by 15.85 percent to Rs 3,134.36 crore on year-on-year basis while non-interest income (other income) shot up 59.5 percent to Rs 1,775 crore, driven by improved core fee income as well as trading gains.
Advances (loan book) for the quarter stood at Rs 3.49 lakh crore, down 8.9 percent from year-ago quarter while deposits were flat at Rs 5.89 lakh crore.
Gross non-performing assets as a percentage of gross advances increased 5 basis points to 11.40 percent but net NPAs declined 3 bps to 5.43 percent sequentially.
Slippages were very high at Rs 4,100 crore in Q3 against Rs 2,800 crore in Q2FY17. Overall margin was down 20 bps sequentially to 2.1 percent and Tier 1 capital dropped by 50 basis points.
"Management continues to engage in the balance sheet clean-up exercise, with greater focus on recognising stress than growth; asset quality pressures stand imminent for upcoming quarters until it normalises by fiscal year end," says KR Choksey which has maintained accumulate rating on the stock.
PS Jayakumar, MD and CEO of BoB says the gross slippages are expected to be at Rs 15,000 crore in FY17, and likely to drop in FY18.
He further says, "We should not see any need for incremental infusion of equity capital. However, we will be continuing to raise tier one capital. We raised Rs 1,000 crore. We probably going to take it up to Rs 4,000 crore and if the growth numbers next year are strong, it would not be a bad idea to go with a rights issue."
At 11:31 hours IST, the stock was quoting at Rs 173.25, down Rs 14.80, or 7.87 percent on the BSE.Posted by Sunil Shankar Matkar
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