Motilal Oswal neutral on Bank of Baroda

Motilal Oswal has maintained neutral rating on Bank of Baroda (BOB) with a target of Rs 750, in its July 31, 2012 research report.

“Bank of Baroda's (BOB) 1QFY13 PAT grew 10% YoY to INR11.4b (in line with estimate). Operating profit was lower than our estimate by 9%. However, lower tax rate (15% v/s 30% estimated) led to in-line PAT.”

“During the quarter, slippages were INR12.6b (annualized slippage ratio of 2.2%) and BOB restructured loans of INR8b (28bp of overall loans). BOB's performance on this front has been better than peers. Domestic margin declined 22bp QoQ to 3.2%. However, adjusted for one-off interest of INR1b on IT refund in 4QFY12, margin decline would have been just 8bp. Global loans grew 23% YoY, led by 41% YoY growth in overseas loans, which could partially be attributed to sharp INR depreciation. Domestic loans grew 16% YoY, but declined 3% QoQ. Guidance for FY13: (a) domestic NIM of 3.2%; global NIM of 2.7-2.75%, (b) non-interest income growth of 20%, and (c) 3-4% higher than industry business growth.”

“While valuations are reasonable, these need to be seen in the context of expected deterioration in RoA and RoE in FY13/14. Near-term headwinds are: (a) top management change in CY12, and (b) challenging macro environment leading to higher slippages (room for negative surprise is limited), though performance so far is better than peers. Maintain Neutral,” says Motilal Oswal research report.     

Non-Institutions holding more than 90% in Indian cos

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