Buy Bank of Baroda; target of Rs 845: Sushil Finance

Sushil Finance is bullish on Bank of Baroda (BOB) and has recommended buy rating on the stock with a target of Rs 845 in its August 2, 2012 research report.

“Bank of Baroda (BOB) has posted mixed set of numbers with decent core operating performance, higher provisions results in modest growth in PAT. Asset quality continues to show stress, but still better than peers.”

“During Q1FY13, NII grew by 22% and stood at Rs.28 bn on the back of a decent 23% YoY growth in Advances (mainly benefitting from overseas book). Deposits showed a growth of 22% YoY with CASA growth of 14.4% YoY and term deposits growth of 25.4% YoY. The Global CASA’s share in total deposits declined by 180 bps YoY & 83 bps QoQ, now forming 26.1% of the total deposits. Overseas business saw a growth of 39% YoY, partly helped by Rupee depreciation and now contributes 29.1% to the Bank’s total business. The Bank’s non interest income saw a decent growth of 20% YoY mainly from forex income and higher recoveries in written off accounts. Fee income continued to disappoint with tepid growth of 1% YoY, while treasury income saw a modest 10% YoY growth."

"The Bank’s operating expenses grew by 19% YoY on higher employee expenses growth of 18% YoY and operating expenses growth of 20% YoY. The Bank’s Cost to Income ratio stood at 37.7% in Q1FY13 as compared to 38.6% in Q1FY12. The Bank’s total provisions in Q1FY13 increased by steep 132% YoY (6% QoQ) to Rs.8.93 bn. This was largely driven by higher provisions on NPAs (Rs.8.12 bn in Q1FY13 as against Rs.3.91 bn in Q1FY12) on account of higher fresh slippages and policy to keep provision coverage at a higher side.  Despite higher provisioning, decent core performance and lower taxes (benefit of lower taxes on profits in international business and deferred tax used on investments portfolio) led to modest growth in Net Profit of 9% YoY at Rs.11.39 bn.”

“Bank of Baroda has consistently maintained strong business growth and stable operational performance, although asset quality showed stress, higher provisions will cushion future shocks. Considering its Q1FY13 performance, we have largely retained our estimates. Going forward, we expect its Advance & Deposit to grow by 18.9% & 17.7% in FY13E and 18.2% & 17.6% in FY14E, while its Net Profit to grow at 7% in FY13E & at 16.6% in FY14E. Despite challenging operating environment and considering deterioration of asset quality, BOB has sailed better than its peers. With good ROE profile (18%), high PCR and strong Tier I ratio cushions the stock. BOB currently trades at an attractive valuation of 0.8x FY14E ABV & 4.4x FY14E Earnings, we believe the stock should trade at 1.05x P/ABV FY14E. We maintain BUY with a price target of Rs.845,” says Sushil Finance research report.   

Bodies Corporate holding more than 50% in Indian cos

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