Accumulate Bank of Baroda; target of Rs 868: KRChoksey

KRChoksey is bullish on Bank of Baroda (BOB) and has recommended accumulate rating on the stock with a target of Rs 868 in its October 23, 2012 research report.

“Bank of Baroda posted PAT of Rs1302 crore growing by 14.3% q-o-q & 11.6% y-o-y in line with our expectation. NII grew 11.5% y-o-y aided by strong loan book growth 22.2% y-o-y. Net interest margin flat Q-o-Q to 2.71% mainly due to calibrated efforts for containing cost of funds. Non interest income increased 12.8% y-o-y driven by strong forex profits and higher trading gains. Trading gains grew 37.4% Q-o-Q to Rs112 crore mainly due to relatively favorable market condition. Core fee income growth remains tepid at 2.8% y-o-y, reflecting balance sheet slowdown and dried up incremental sanction. Slower growth in operating expenses has also helped profitability. Asset quality has remained under pressure as slippage ratio remained at 2.1% against 1.25% full year guidance.”

“NII grew modestly 11.5% y-o-y & 2.3% q-o-q led by 22.2% y-o-y loan book growth. Net interest margins declined marginally 2bps q-o-q to 2.71%; arresting margin pressure to some extent. Blended loan yields declined 1bps q-o-q while funding costs increased 4bps q-o-q, resulted into 2bps contraction in NIMs sequentially. The management has maintained net interest margin guidance at 2.75% in FY13. Non interest income increased 12.8% Y-o-Y & 7.5% Q-o-Q driven by strong growth in forex and higher trading gains (up 37.4% Q-o-Q). Core fee income slowed down significantly 2.8% y-o-y to Rs414 crore. Trading gains went up from Rs82 crore in Q1FY13 to Rs112crore in Q2FY13. Recovery from write offs declined 46.3% y-o-y; below than quarterly run rate.”

BOB reported steady core operating performance during the quarter. We believe superior PCR ratio and healthy core operating profit growth provide enough cushion to earning’s pressure coming from asset quality deterioration. We have cut our FY13 & FY14 earnings estimates by 4.0% and 3.7% respectively factoring higher credit costs and lower NIMS. We expect BOB to deliver 10.6% CAGR in net earnings over FY12-14 driven by healthy loan growth, steady NIMs and improving operating efficiency. At Rs781, the stock is trading at 0.9x FY13 adjusted book and 5.3x FY14 earnings, reasonable valuation given better RoEs in PSBs. We maintain accumulate rating on the stock with a target price of Rs868,” says KRChoksey research report.

Public holding more than 90% in Indian cos

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