Aditya Birla Money neutral on Bank of Baroda

Aditya Birla Money has maintained neutral rating on Bank of Baroda (BOB) with a target of Rs 796 in its February 6, 2013 research report.
 
"Bank of Baroda, net profit after tax for the current quarter registered a sharp decline of 21.6% YoY (22.3% QoQ) to Rs10116.2 mn from Rs12898.5 mn for Q3 FY12. The dip in PAT was on the back of subdued growth in NII at 7.0% YoY (decline of 0.7% QoQ). Decline in margins (34 bps YoY, 6 bps QoQ) coupled with lower CD ratio (decline of 247 bps YoY) impacted the NII growth during the quarter. Added to this sharp decline in other income, increase in operating cost and higher provisions also aided in fall in net profits. Other income during the quarter registered a fall of 26.9% YoY (growth of 1.5% QoQ) on the back of lower trading gains & flat growth in core fee income. Operating costs also increased during the quarter (increase of 727 bps YoY, 328 bps QoQ in C/I ratio) driven by higher employee costs. Provisions increased 23.0% YoY (59.2% QoQ) driven by higher slippages (2.8% annualised vs ~2.1% QoQ & 1.6% YoY). Besides this the bank has made additional provision of Rs 0.8 bn toward additional provision of 75 bps mandated by RBI for standard restructured assets."
 
"Global Net Interest Margins (reported) declined both on a YoY basis and sequentially by 34 bps and 6 bps respectively to 2.65% driven by sharp decline in domestic NIMs by 43 bps YoY (15 bps sequentially). Domestic cost of deposits jumped 43 bps YoY (decline of 3 bps QoQ) to 7.33, whereas Domestic yield on advances declined 44 bps YoY (18 bps QoQ) to 11.57% during Q3FY13. The sharp decline in yield on advances was on the back of interest reversals of ~Rs1.4 bn. Going forward, the bank proposes to bring down bulk deposits from ~Rs 500 bn currently to ~Rs 300-350 bn (or ~10% of the deposits). The management is confident of maintaining domestic NIMs above 3% going forward. Total business of the bank registered a growth of ~17.1% YoY (2.0% QoQ) as at Q3FY13. Deposits grew by 18.8% YoY (1.6% QoQ), whereas Net Advances grew by 14.8% YoY (2.4% QoQ). Robust growth in overseas business with deposits & advances registering a growth of 26.7% YoY (3.5% QoQ) & 22.0% YoY (4.9% QoQ) respectively fuelled growth in overall business. Share of domestic CASA deposits registered an increase of ~48 bps QoQ from 31.7% to 32.2%. Going forward, we expect the loan book to grow at ~14.0% & 19.0% for FY13E & FY14E respectively."
 
"The bank continues to witness sharp deterioration in its asset quality during the quarter. Considering the possibility of higher incremental restructuring and risk of higher slippages in the restructured portfolio we have increased our provisioning assumptions for FY13E by ~4%. We estimate BoB to report an EPS CAGR of 6.7% over FY12-FY14E. ABV is estimated to grow at 12.5% CAGR during the same period. We roll our target price to December 13 revising our target price to Rs795.7 (Rs808.0 earlier) valuing the bank at 0.9x its FY14E ABV, implying an upside of 1.7% from current levels. Thus we change our rating from Accumulate to Neutral," says Aditya Birla Money research report.

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