Hold Bank of Baroda; target of Rs 800: Emkay

Emkay Global Financial Services has recommended hold rating on Bank of Baroda (BOB) with a target of Rs 800 in its October 22, 2012 research report.

“BOB Q2FY13 NII at Rs28.6bn (+11.5% yoy) was broadly inline with expectations. However aided by higher non-int income and lower tax rate (24.5% aided by higher write offs), net profit at Rs13.1bn (+11.6% yoy) was marginally ahead of estimates. Other income grew by 12.8%yoy led by higher trading and Fx gains. Resultantly operating profit at Rs23.8bn was up 11.3% yoy inline with our expectation. Slippages/ restructuring at Rs14.7bn/ Rs9.3bn surprised negatively. As the bank provided only 60% on the incremental slippages, provision cover fell to 59% from 65% in last quarter. There were three large accounts contributing Rs4bn to slippages.”

“The bank reported higher slippages for the fourth consecutive quarter at Rs14.7bn with slippage rate over last four quarters remaining in the range of 1.5-2.0%. However with aggressive write off during the quarter at Rs5.8bn, and Rs2.8bn of recovery/ upgradation, GNPA increased by a lower 10.5%qoq, inline with expectation. During the quarter, BOB has aggressively resorted to write offs which along with lower incremental PCR (60%) has resulted in 600bps reduction in overall PCR to 59.4% Restructuring for the quarter also came in higher than expected at Rs9.3bn. However the management sounded positive on restructuring with very few accounts in restructuring pipeline. Moreover the management does not perceive any significant slippages from its restructured book. Cumulative slippages till date as percentage of sept 2011 restructured book, stood at 19%.”

“As BOB aggressively resorted to write offs during the quarter, it traded off the provision cover for higher profitability. Nonetheless, overall quality of numbers still remained weaker with no expansion in NIMs (despite wholesale costs coming off), higher than expected slippages and restructuring. At 2% annualized for H1FY13, the slippage rate now comes nearer to industry averages too. We believe that the recent run-up in the stock price fails to leave the margin of safety in the stock incase the slippage were to remain elevated. At CMP the stock trades at 1.1x/ 0.9x FY13/FY14 ABV. We assign hold on the stock with TP of Rs800,” says Emkay Global Financial Services research report.

FIIs holding more than 30% in Indian cos

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