Buy Bank of Baroda; target of Rs 900: PLilladher

Prabhudas Lilladher is bullish on Bank of Baroda and has recommended buy rating on the stock with a target of Rs 900 in its May 29, 2012 research report.

“Rise in slippages over the last two quarters and an impending management change over the next nine months has led to significant underperformance. We met up with the Chairman Mr. Mallya to understand the possible risks to asset quality over the next 12-18 months. Management maintained its guidance of 1.2-1.4% slippages and believes that the company’s strategy of no-bulk loans in the Infra space will remain a big differentiator over the next 2-3 years. With valuations now in line with BOI/PNB at 0.85x FY13 book, asset quality risks are well factored in and our recent upgrade to ‘BUY’ post Q4FY12 reflects our positive view at current vals.”

“BOB believes that the biggest risk mitigator for them in the Infra sector would be small ticket loans. Apart from 3-4 large industrial groups, BOB does not have a single private Infra exposure >2.5bn which is just 0.1% of their loan book in line with our project finance channel checks. This, we believe, mitigates risks from lumpy slippages from Infra in the next 1-2 years. Management believes Q4FY12 slippages level is an aberration and the Rs4.5bn exposure to the media account is a one-off.”

“We factor in 1.8% of slippage v/s guidance of 1.2-1.4% and that does factor in some negative asset quality surprise. Also, involvement in CDR pipeline cases seems to be the least among PSUs. Margins have been improving for domestic and international business. However, given the low offtake, management is seeing pressure on margins from Q1FY13 itself. Also, with Infra sanctions coming off, fee income growth will also be moderate. With fall in margins and fee income, PAT growth will be moderate at just 6.4% but ROAs at >1.0% continues to remain best among PSUs. Hence, valuations at 0.85x FY13 book seem undemanding despite the impending management change,” says Prabhudas Lilladher research report.  

Non-Institutions holding more than 90% in Indian cos

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

To read the full report click on the attachment

Read More