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

Sushil Finance has recommended hold rating on Bank of Baroda (BOB) with a target of Rs 845, in its October 29, 2012 research report.

“Bank of Baroda (BOB) has posted mixed set of numbers with moderate operating performance; comparatively lower provisioning resulted in modest growth in PAT, while asset quality continues to show stress but still better than peers.”

“During Q2FY13, NII grew by 12% and stood at Rs.28.6 bn on the back of a strong 23% YoY growth in Advances. Deposits showed a growth of 24% YoY with CASA growth of 17% YoY and term deposits growth of 27% YoY. The Global CASA’s share in total deposits declined by 161 bps YoY & 28 bps QoQ, now forming 25.8% of the total deposits. Overseas business saw a growth of 35% YoY and now contributes 29.8% to the Bank’s total business.  The Bank’s non interest income saw a moderate growth of 13% YoY mainly from higher trading gains and forex income. Fee income continued to disappoint with tepid growth of 2% YoY. The Bank’s operating expenses grew by 13% YoY as employee expenses grew by 13% YoY and other operating expenses saw modest growth of 8% YoY despite higher branch and ATM additions. The Bank’s Cost to Income ratio stood at 36.6% in Q2FY13 as against to 35.3% in Q2FY12.  The Bank’s total provisions in Q2FY13 increased by 33% YoY (-27% QoQ) to Rs.6.59 bn. Investment depreciation write-back of Rs.1.34 bn capped provisions rise, while provisions on NPAs increased (Rs.7.23 bn in Q2FY13 as against Rs.2.98 bn in Q2FY12) on account of higher fresh slippages and policy to keep provision coverage at a higher side.  Comparatively lower provisioning, moderate core performance led to modest growth in Net Profit of 12% YoY at Rs.13.01 bn in Q2FY13.”

“Bank of Baroda has consistently maintained strong biz growth and stable operational performance. Although asset quality continues to show stress, higher provisioning will cushion future shocks. Considering its Q2FY13 performance, we have tweaked our FY13 estimates by increasing provisions on back of increase in fresh slippages ratio impacting PAT by 2%, while largely retained our FY14 estimates. Going forward, we expect its Advance & Deposit to grow by 18.9% & 17.7% in FY13E and 18.7% & 17.7% in FY14E, while its Net Profit to grow at 5% in FY13E & at 19% in FY14E. Despite challenging operating environment and considering deterioration of asset quality, BOB has sailed better than its peers. BOB currently trades at an valuation of 0.9x FY14E ABV & 5.0x FY14E Earnings. We change our rating to ‘Hold’ with a price target of Rs.845 (1.05x FY14E P/ABV),” says Sushil Finance research report.   

FIIs holding more than 30% in Indian cos

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