Hold BOB; target of Rs 841: Arihant capital markets

Arihant capital markets has recommended hold rating on Bank of Baroda (BOB) with a target of Rs 841, in its February 6, 2013 research report.
 
“ The state lender Bank of Baroda (BoB) earnings disappointed for the third quarter in a row with disconcerting performance across most of the parameters. Sharp deterioration in asset quality, weak earnings and slowdown in business growth has marred the historically rich performance of BoB.”
 
“The Q3 profitability of the bank at Rs 1012 crs reporting negative 21.6% YoY growth and negative 22.3% QoQ growth turned out to be poorest in comparison to the bank’s past performances primarily on account of higher provisions and subdued top-line performance. While core interest income performance was not encouraging on account of subdued loan growth owing to troubled large corporate exposures, non-interest income performance too suffered with no significant gains either coming from trading or from core fee-income. Also, while the asset quality worries exacerbated, the credit costs jumped 59% sequentially and 23% annually dragging the profitability for the quarter. Furthermore, margins remained stagnant at 2.7% on account of slowdown in CASA momentum (CASA 32.2%, down from 34% a year ago) during the quarter, and narrowing of spreads. With the recent base rate cut and little room to cut the deposit rates, spreads going ahead would be under pressure and hence margins constrained. However, the Management expects to maintain margins at 3% levels which is challenging. The 4 –year CAGR (FY12-FY15E) is expected to be at mere a 9% level which is not quite encouraging; unlike BoB’s past performance.”
 
“In our opinion, asset quality risks would continue to haunt BoB given the elevated slippages, insignificant recoveries and heavy restructuring. The Management transition and clean-up of stressed book will consume next couple of quarters. While the near-term business dynamics appears to be challenging for the bank with strained operating and financial metrics impacting the return ratios, we tone down our estimates and downgrade the stock to HOLD (earlier: Accumulate) bringing down the price target to Rs 841 (earlier: Rs 864) and continue to value the stock at 1.0X P/ABV FY14E. Despite reasonable valuations, we maintain cautious stance on the stock given the medium-term pressures and also expect the stock price correction in near term before it reaches the set target,” says Arihant capital markets research report.

Public holding more than 90% in Indian cos

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