BANKBARODA

Short Bank of Baroda April future; target Rs 740

Bank of Baroda (BOB) has signaled trend reversal from medium term uptrend after prices closed below the 200 DMA in yesterdays trading session. This was also followed with breakdown from descending triangle pattern and RSI moving below the support zone of 50 DMA. The amplitude of breakdown of triangle projects downside potential in the counter to Rs 720 which turns out to be strong support zone. We recommend going short on Bank of Baroda April futures below Rs 766 with stop loss of Rs 779 for target of Rs 740. (Duration7 days). 

Buy Bank of Baroda; target Rs 968.4

Bank Of Baroda (BOB), net Profit after tax for the current quarter increased 20.7% YoY (10.6% QoQ) to Rs 12898.5 mn from Rs 10688.8 mn for Q3 FY11. The growth in PAT on YoY basis was mainly driven by 15.8% YoY (3.5% QoQ) increase in the NII at Rs 26555.1 mn (led by robust growth in advances 25.8% YoY and 9.0% QoQ) and 70.0% YoY (56.5% QoQ) increase in other income (led by higher trading gains). Higher net income aided in better operational efficiency during the quarter at 31.5% down 619 bps YoY and 373 bps QoQ. However, higher provisions during the quarter (increase by 179.5% YoY and 71.2% QoQ) led by higher slippages (~9.5 bn) has moderated the growth in profit to some extent.

Global Net Interest Margins (reported) declined both on a YoY basis and sequentially by 21 bps and 8 bps respectively to 2.99% driven by sharp decline in domestic NIMs by 31bps and 16 bps on a YoY and QoQ basis respectively. Overseas NIMs on the other hand increased by 22 bps sequentially. On the flip side higher yield on investments both in the domestic and overseas book has provided some support to the margins. Total business of the bank registered a robust growth of ~24.8% YoY (7.3% QoQ) as at Q3FY12 (partly supported by robust growth in overseas book due to currency depreciation). Deposits grew by 24.0% YoY (6.1% QoQ) from Rs 2815.1 bn in Q3 FY11 to Rs 3492.1 bn in the current quarter, whereas Net Advances grew by 25.8% YoY (9.0% QoQ) from Rs 2072.1 bn to Rs 2606.6 bn over the same period. Share of domestic CASA deposits remained stable at 34.05% an increase of 3 bps QoQ despite higher term deposit rates, mainly on the back of higher branch additions.

Asset quality deteriorated during the quarter with gross NPA increasing by 14.5% QoQ and 40.6% YoY (led by one large aviation account). In percentage term GNPA increased by 16 bps YoY (7 bps QoQ). The slippages during the quarter stood at ~1.6% annualised. The restructured book during the quarter increased by Rs 21.2 bn taking the total restructured book to Rs 99.5 bn (~3.8% of the loan book). The management has indicated that the large part of the restructured account during the quarter pertains to one account in telecom infrastructure sector. Till date 12.7% of the total restructured book of Rs 99.5 bn has slipped into NPAs. The bank had opened 199 new branches in this quarter taking the total number of branches to 3691. Large numbers of branches were opened in UP & Uttaranchal; Gujarat; Southern Zones & Rajasthan.

The bank has witnessed sharp deterioration in its asset quality during the quarter with restructured book going up from 3.3% of the loan book to 3.8%. Considering the risk of higher slippages in the restructured portfolio we have increased our provisioning assumptions for FY12E and FY13E by 26.0% and 23.0% respectively. We estimate BoB to report an EPS CAGR of 14.9% over FY11-FY13E. ABV is estimated to grow at 18.9% CAGR during the same period. We believe with the deterioration in asset quality, the premium valuation that bank commands over its peer group is likely to come under pressure going forward and consequently we have reduced our target multiple from ~1.4x to ~1.3x with a revised target price of Rs 968.4 (Rs 999.7 earlier), providing an upside potential of 27.4% from current levels.

 

Buy Bank of Baroda; target Rs 906

For 3QFY2012, Bank of Baroda posted a healthy set of numbers on the operating front; however, slight deterioration in the asset quality was witnessed during the quarter. Provisioning expenses (Rs 8.5 billion) grew substantially by 179.5% yoy, though they were mostly offset by traction in other income, which registered a robust performance, growing by 70.0% yoy to Rs 11.49 billion. Consequently, net profit managed to grow by 20.7% yoy to Rs 12.9 billion.

The bank`s businesses gathered pace during 3QFY2012, with advances growing by 9.1% qoq (25.8% yoy) and deposits growing by 6.1% qoq (24.0% yoy). The bank`s overseas book grew by 45.7% yoy, however removing the effect of INR depreciation over the past six months, growth was more normalized at 25% yoy levels.

The bank witnessed slight deterioration in its asset quality, with gross and net NPA levels rising by 14.5% qoq and 18.5% qoq, respectively. Gross NPA ratio as of 3QFY2012 stood at 1.5% (1.4% in 2QFY2012), while net NPA ratio stood at 0.51% (.47% in 2QFY2012). Slippage levels, which have a quarterly run-rate of Rs 5 billion, came in at Rs 9.52 billion (annualized slippage ratio of 1.7%) for 3QFY2012.

The bank restructured accounts worth Rs 21.16 billion in 3QFY2012, on which the bank made a provisioning of Rs 1.54 billion. However, as a percentage of overall advances, restructured assets still remain at low 3.8% (much lower compared to other PSU banks). Also, the bank`s provision coverage ratio remained elevated at 80.5% for 3QFY2012. We maintain our `Buy` rating on the stock with a target price of Rs 906.

Accumulate Bank of Baroda; target Rs 825

Gross delinquencies low over the last five years:

BOB`s asset quality has been holding up much better than most peers, with gross slippages of <100bps over the last six quarters. We would like to highlight that BOB`s slippages have remained much at <100bps, including Lehman crisis v/s peer banks, with 1.7-2.3% average delinquencies over the last 4-5 years. This highlights that low delinquencies is not just a timing function but possibly better underwriting and monitoring.

Asset book check-limited differentiators:

Better underwriting' Loan book composition, with marginally higher retail book and lower SME exposure, is positive but does not address the big asset quality divide. BOB`s exposure to stress sectors is also in line with peers, with only marginally lower power/ Infra exposure. Anecdotal evidence does point to conservative and better underwriting by BOB. However, we find the large asset quality divide is still surprising.

What is the stock discounting' Low credit costs assumptions building some premium:

BOB is currently trading at par with PNB and SBI, given the expectations on stable asset quality. Though valuations do not capture the premium for superior asset quality, we believe consensus ROAs does build a premium with credit costs assumptions for BOB, significantly lower at 70-75bps v/s 100-105bps of credit cost expectations for other PSU banks, highlighting downside risks in case of any asset quality disappointments.

Accumulate; PT of Rs 825/ share:

Our Sep-12 PT of Rs 825/ share is based on two-stage Gordon growth, implying 16% upside from current levels. We do not see gross slippages for BOB inching up to industry levels in the near term and hence, credit costs will continue to be lower in the near term. However, with our asset book analysis not explaining the asset quality divergence meaningfully and given high expectations on asset quality, downside risks would also be higher and that drives our `Accumulate` rating.

Buy Bank of Baroda with;  target Rs 850

Bank of Baroda stands out among the PSU banks as it continues to deliver strong earnings growth with improvement in key operational metrics. The bank`s business growth is expected to remain better than industry`s (contributed by stronger overseas growth) with relatively stable margins which will lead to a healthy growth in the top line.

While the asset quality of most PSU banks has deteriorated significantly over the past two to three quarters, BoB`s asset quality has remained healthy due to lower slippages. Although, the asset quality risks have risen due to weak macro environment and policy issues, yet BoB is expected fare better than the other PSU banks in terms of asset quality, resulting in lower credit cost and higher growth in earnings.

The operating metrics of BoB has improved significantly led by strong focus on CASA, margins, fee income etc. The bank is expected to post RoE and RoA of around 20% and 1.2% respectively over the next two years.

We believe BoB commands a premium over the other PSU banks due to a steady growth in its core income and a healthy asset quality. Currently, the stock is trading at 1.05x FY2013 book value which is reasonable. We recommend a Buy on the stock with a price target of Rs 850 (1.2x FY2013E BV).

Sell Bank of Baroda December future

Bank of Baroda (BOB) on the daily has violated trend line support of Rs 690 and which also reinforces that Wave 5 of Five is in the last stage of progress which should atleast test levels of Rs 650 before any signs of recovery. The MACD has been sustaining below the reference line and its 9DMA is about to test the neutral zone. Also despite gains in market stock has underperformed markets which also make case for further downside. We recommend going short on Bank of Baroda December Futures below Rs 688 with stop loss of Rs 714 for Target of Rs 672.(Duration 5 days).

Buy Bank of Baroda; target of Rs 999

Bank of Baroda (BOB), net Profit after tax for the current quarter increased 14.4% YoY (12.9% QoQ) to Rs 11660.8 mn from Rs 10193.0 mn for Q2 FY11. The growth in PAT on YoY basis was mainly driven by 25.9% YoY (11.7% QoQ) increase in the NII at Rs 25669.1 mn (led by robust growth in advances coupled with sharp improvement in margins). Added to this, better operational efficiency during the quarter further aided the growth in net profit. Cost to income ratio during the quarter improved by 390 bps YoY and 249 bps QoQ to 35.2% driven by flat to negative growth in staff expenses. However, lower other income growth at 7.8% YoY (led by lower trading gains) and higher provisions (167.6% YoY, 22.8% QoQ) moderated the growth in profit to some extent. Net Interest Margins (reported) improved sequentially by 20 bps (5 bps YoY) from 2.87% to 3.07% driven by sharp increase in domestic NIMs. The domestic NIMs improved from 3.39% in the last quarter to 3.67% driven by 91 bps increase in Yield on Advances as against a 43 bps increase in cost of deposits. Added to this higher yield on investments in the domestic book (13 bps increase) further aided the improvement in margins.

Total business of the bank registered a robust growth of ~22.8% YoY (4.2% QoQ) as at Q2 FY12. Deposits grew by 22.1% YoY (5.2% QoQ) from Rs 2696.6 bn in Q2FY11 to Rs 3291.9 bn in the current quarter, whereas Net Advances grew by 23.9% YoY (2.9% QoQ) from `1929.6 bn to Rs 2391.2 bn over the same period. Share of domestic CASA deposits stood at 34.02% a decline of 48 bps QoQ mainly on the back of higher term deposits leading to shifting of deposits. Going forward, we expect deposit and advances to grow at a CAGR of 22.4% and 21.3% respectively over FY11-13E. Asset quality remained firm on sequential basis but slipped on YoY basis. Gross NPA has increased 25.1% YoY and declined 0.7% QoQ to Rs 34.02 bn in the quarter under review. In percentage term GNPA increased by 2 bps YoY against a decline of 5 bps on QoQ basis. Sharp recovery in the current quarter to the tune of Rs 6.06 bn against a fresh addition of Rs 5.83 bn has led to the sequential improvement in asset quality. Net NPA has jumped up 53.0% YoY and 9.2% QoQ to Rs 11.19 bn. The restructured book stood at Rs 78.29 bn of which Rs 11.18 bn were restructured during the quarter. The bank had opened 29 new branches in this quarter taking the total number of branches to 3492. The Bank plans to open 264 branches in Tier-1 & Tier-2 centres and 305 branches in Tier-3 to Tier-6 centres in the current fiscal.

The improvement in asset quality led by lower slippages and sharp recovery was a positive surprise during the quarter. The bank’s strong asset quality, superior return ratios, strong asset growth, better productivity and adequate capitalization bodes well for its future growth. We estimate BoB to report an EPS CAGR of 18.0% over FY11-FY13E. ABV is estimated to grow at 18.9% CAGR during the same period. We have slightly increased our target price to Rs 999.7 with a BUY rating (Rs 989.1 earlier) thus providing an upside potential of 24.9% from current levels.

Buy Bank of Baroda; target Rs 954

The bank reported a 36.8% increase in the international loan book and 19.3% growth in the domestic book. Global NIM stood at 3.07% but domestic NIM increased by 28 bps to 3.67% from 3.39% sequentially. Domestic yields spiked sharply by 91 bps in a quarter to 12.14% whereas cost of deposits rose only 41 bps to 6.82% boosting NIMs.

Non-interest income grew at 7.8% YoY to Rs 7.34 billion. Core fee income (CEB) grew 26% YoY to Rs 3.13 billion in correlation with strong credit growth. Also, the international business contributed 36% to core fee income. Strong liability franchise has helped maintain CASA at 34.2%

Stability of asset quality in tough times:

GNPA (Rs 34.02 billion) remained flat QoQ in absolute terms and came down to 1.41% whereas NNPA (Rs 11.18 billion) rose marginally to 0.47%. Restructured assets increased to Rs 78.29 billion from Rs 71.67 billion, an increase of Rs 6.62 billion in Q2FY12. These assets comprise 58% wholesale banking, 23% SME, 11.4% agriculture and 7.5% retail. Of the total amount, Rs 9.59 billion has slipped into NPA. We expect GNPA & NNPA to reach 1.6% & 0.5%, respectively, in FY13E.

Valuation:

We remain positive on the stock as the management has consistently delivered both on profitability and asset quality guidance. We expect business to grow at 20% CAGR over FY11-13E and RoE and RoA to stay above 20% and 1.2%, respectively. We, therefore, maintain the premium multiple of 1.4x FY13E BV for the bank and target price of Rs 954.

Accumulate Bank of Baroda; target Rs 881

For 2QFY2012, Bank of Baroda reported reasonable 14.4% yoy growth in its net profit to Rs 11.66 billion, above our estimate of Rs 10.88 billion, primarily due to considerably better operating income than built in by us, which was largely offset by higher provisioning expenses. Sequential expansion in NIM coupled with persistence of healthy asset-quality trends were the key positive takeaways from the results.



For 2QFY2012, the bank`s overall business momentum remained moderate, with advances growing by 2.9% qoq (up 23.9% yoy) and deposits increasing by 5.2% qoq (22.1% yoy). Global saving account deposits were relatively better at 15.5% yoy. However, slower (5.7% yoy) growth in current account deposits led to a 200 bp yoy compression in calculated global CASA ratio to 27.4%.

The sharp 91 bp qoq expansion in yield on advances vis-a-vis a 43 bp qoq rise in cost of deposits led to a 28bp qoq expansion in reported domestic NIM to 3.7%. Fee-based income rose reasonably by 13.2% yoy. Recoveries from written-off accounts witnessed a robust 76.4% yoy rise to Rs 1.22 billion during 2QFY2012. On the asset-quality front, the bank continued to surprise positively with annualized slippage ratio in check at 1.0%.

Absolute amount of gross NPAs declined on a qoq basis, albeit marginally. Gross and net NPA ratios remained largely flat on a sequential basis at 1.4% and 0.5%, respectively. Provisioning expenses were considerably higher than expected as the bank chose to maintain its provision coverage ratio (including technical write-offs) at elevated levels of 82.0%. At the CMP, the stock is trading at 1.1x FY2013E ABV. We maintain our `Accumulate` rating on the stock with a target price of Rs 881.

Neutral Bank of Baroda; target Rs 925

Bank of Baroda (BOB) reported PAT growth of 14% YoY for 2QFY12 to Rs 11.7 billion (11% higher than our estimate), driven by higher than expected NII growth and lower tax provisioning.

Domestic NIM expands 28bp QoQ:

Reported domestic NIM was 3.67% v/s 3.39% a quarter ago. NIM expanded 28bp QoQ, led by 91bp QoQ increase in yield on loans. Cost of deposits increased by 43bp QoQ.

Business growth moderates:

Loans grew 3% QoQ and 24% YoY to Rs 2.4 trillion. Global deposits grew 22% YoY and 5% QoQ. CD ratio contracted to 72.6% v/s 74.2% in 1QFY12. Domestic CD ratio stood at 69.1% v/s 71.3% a quarter ago. CASA deposit growth moderated to 13% YoY.

Slippages remain under check:

Slippages during the quarter were Rs 5.8 billion (annualized slippage ratio was 1.2%; stable QoQ). Credit cost was 0.5% v/s 0.2% in 1QFY12. Reported PCR declined to 67% from 70% a quarter ago, leading to 9% QoQ increase in NNPA v/s 1% QoQ decline in GNPA. However, PCR including technical write-offs was largely stable QoQ at 82%. BOB restructured loans of Rs 6.6 billion (38bp of domestic loans) during the quarter.

Fee income up 15% QoQ and 13% YoY:

Fee income (ex forex) grew 15% QoQ and 13% YoY (on a higher base) to Rs 4.5 billion. Higher recoveries of Rs 1.2 billion (Rs 690 million a year ago) compensated for muted trading profits (Rs 102 million v/s Rs 1.1 billion a year ago).

BOB completed the takeover of Memon Cooperative Bank. As a result, a deficit of Rs 1.4 billion was created (to be amortized over four years), of which the bank provided Rs 130 million during the quarter.

Valuation and view:

The stock trades at 1.3x FY12E and 1.1x FY13E BV. We believe credit cost is at its lowest and room for positive surprise is limited. Maintain Neutral.

Buy Bank Of Baroda; target Rs 1,050

Net interest income (NII) grew 25.9% in Q2FY12, ahead of expectations, on back of strong loan growth (23.9%) and 5 bps improvement in NIM. However, its net profit growth came slightly lower at 14.4% on back of moderate non-interest income and higher provisions (Rs 4.83 billion during Q2FY12 as against Rs 1.86 billion during Q2FY11).

Asset quality remained stable with gross and net NPA reported at 1.41% and 0.47%, respectively. BoB  has also done well on the slippage front, which has remained stable at ~1.0% during last two quarters (better than that of its peers). Lower restructured book (~3.3%) along with lower slippage on these accounts (12.3% till Q2FY12) vis-Ã -vis that of its peers further enhances our confidence.

We are modeling earnings to grow 15.5% CAGR during FY11-13E, while return profile is also expected to remain healthy (RoA: ~1.2%, RoE: ~22.0%) during next two years. We believe BoB deserves to trade at a premium to its peers, who have shown less discipline while striving for growth and hence maintain BUY rating on the stock with the unchanged TP of Rs 1,050 based on 1.5x its FY13E adjusted book value.

Valuation & recommendation

At the current market price of Rs 771, the stock is trading at 5.3x its FY13E earnings and 1.1x its FY13E ABV. We are modeling earnings to grow 15.5% CAGR during FY11-13E, while return profile is also expected to remain healthy (RoA: ~1.2%, RoE: ~22.0%) during next two years.

We like BoB for consistently delivering healthy operating performance and improving its return ratios over last couple of years. Although their exposure to infrastructure segments is in line with that of peers, its restructured book remains fairly small with low delinquencies (Rs 78.3 billion; ~3.3% of advances).

Hence, we believe BoB deserves to trade at a premium to its peers who have shown less discipline while striving for growth. We are maintaining BUY rating on the stock with the unchanged target price of Rs 1,050 based on 1.5x its FY13E adjusted book value.

Bank of Baroda `Accumulate`; target Rs 826

Bank of Baroda Q2FY12 NII at Rs 25.7 billion (up 26% y-o-y) was significantly ahead of our and consensus estimates. The growth in NII was aided by healthy loan growth and improved yields on advances primarily on domestic front.

Global NIM expanded 20 bps q-o-q to 3.1% largely aided by 28 bps q-o-q expansion in domestic NIM. Higher growth in core fee-income (up 26% y-o-y) and improved recoveries (from w/off accounts) compensated for lower trading gains. As a result, despite higher provision towards NPA including investment deprecation, adjusted net profit at Rs 11.6 billion was up 14.4% y-o-y.

The balance sheet expanded 4.7% q-o-q (23.8% y-o-y) on back of healthy 7% q-o-q growth in investments and 11% q-o-q growth in inter-bank balances. Loan portfolio expanded 2.9% q-o-q and 23.9% y-o-y. Amongst deposits, significant accretion was witnessed amongst foreign deposits (up 10.5% q-o-q and 32.7% y-o-y). Domestic CASA deposits ratio stood at 34.2%, flat y-o-y.

Domestic NIM at 3.67% expanded 28 bps q-o-q. This increase in margins was primarily due to 1) 91 bps increase in yields on domestic loan portfolio 2) 13 bps increase in yield on investments and 3) improved loan mix (MSME segment was up 6.3% q-o-q and 28.3% y-o-y).

During Q2FY12, international loan portfolio expanded 10% q-o-q (36.7% y-o-y) and comprised 29% of the total book. Even on the deposit front, foreign deposits were up 10.5% q-o-q (32.7% y-o-y). The domestic loan portfolio has remained flat q-o-q driven by contraction in the retail and agriculture portfolio.

However, NIM on the international front has remained in sub -1.5% levels for past several quarters (Q2FY12 of 1.42%) and we expect management to shift its focus to high-yielding segments on domestic front.

Higher core fee income at Rs 3.1 billion (up 26.3%) and improved recoveries at Rs 1.2 billion (up 76.4% y-o-y) compensated for lower trading gains. Resultant, growth in non-interest income came in at a tad lower of 8% y-o-y.

GNPA at Rs 34.1 billion remained flat sequential. However, it continues to witness stress across segments of agriculture (4.6%) and MSME (3.1%). The bank has made a provision of Rs 2.9 billion towards NPA (0.12% of advances) including provision of Rs 0.5 billion towards standard assets. Restructured loan portfolio stood at Rs 78.3 billion or 3.3% of total loans.

Slippages for H1FY12 stood at Rs 10.7 billion (up 13% y-o-y). However, they still remain under control at 0.9% annualized. Bank of Baroda credit cost at 0.4% annualized has remained relatively lower to its peers.

Nonetheless, the recovery and upgradation rates have also remained significantly lower. The recovery and upgradations as % of opening GNPAs stood at 24% (annualized) compared to 38% in FY09 and 27% in FY11.

While we have built in just 40 bps on provision costs in our numbers (consensus being no different), such low recovery rates could result in significant downgrade in earnings if the slippage rate moves up.

Valuation:

Bank of Baroda has outperformed its peers primarily due to its ability to deliver on balance sheet growth front, with stable asset quality and NIM. We drive comfort in the bank given valuations of 1.3x/1.1x FY12E/FY13E ABV respectively with average RoE/RoA of 21.8%/1.3% over FY11-13E. Recent correction in the stock brings decent upside to our TP. Upgrade to `Accumulate` from `Hold` with price target of Rs 950.

Buy Bank of Baroda; target of Rs 989

Bank of Baroda has one of the best asset quality among large PSU banks with lowest restructured assets as a % of advances. The total restructured book for BoB at the end of Q1FY12 stood at 3.1% as against the average of 4.8% for the peer group. Besides this, the bank has also experienced lower cumulative slippages in its restructured book in comparison to some large PSU banks till date. We expect the incremental slippages to be 1.2% in FY12E and 0.9% in FY13E. Consequently GNPA is expected to inch up from 1.5% currently to around 1.7% in FY12E and 1.8% by FY13E.

Over the past few years, BoB has been able to register a strong growth in its business (consistently above industry peers) on the back of an extensive branch network with a widespread presence in deposit rich western part of India. With the bank intending to expand its footprint to other parts of India and have a pan India presence, the share of CASA deposits is expected to increase slightly going forward. Going forward, we expect ~21.7% CAGR in overall deposits and 22.2% CAGR in global CASA over FY2011-13E. On the other hand, advances are expected to grow at a CAGR of 21.4% over the same period. BoB is well capitalized with a Capital Adequacy Ratio (CAR) of 13.1% (Tier 1 - 9.1%) as on June 30, 2011 (the best among its peers except PNB). Going forward, the bank has no plans to raise capital over the next one year, thus removing the overhang of capital dilution in the current market conditions. This would support the return ratios of the bank. The bank proposes to maintain its CAR in the band of 13.0%-13.5% in the coming years with Tier-I between 8.0% and 8.5%.

The bank over the years has increased its share of overseas business (22.5% in FY05 to 25.7% in Q1FY12) thereby making its profile more diversified and broad based. On our interaction with the management regarding the quality of overseas exposure, the management has indicated that its exposure in terms of investments and advances are relatively safe as it is largely Indian linked and it primarily involves servicing people of Indian origin in those countries or meeting financing needs of Indian corporates expanding abroad. Added to this, the bank does not have any exposure to PIIGS country, thus making it lot safer in comparison to other banks having overseas exposure.

We estimate BoB to report an EPS CAGR of 16.4% over FY11-FY13E. ABV is estimated to grow at 17.7% CAGR during the same period. The bank’s strong asset quality, superior return ratios, strong asset growth, better productivity and adequate capitalization bodes well for its future growth. The stock currently trades at 1.1x FY13E ABV and 5.1x FY13E EPS which we believe is attractive considering its strong growth prospects. We initiate coverage with a price target of Rs 989.1 per share, implying an upside of 31.9%

Sell Bank of Baroda Fut; target of Rs 755

Bank of Baroda (BOB) has been forming lower and tops and lower bottom and hence rally appearing on Friday trading session remains on weaker note. The volumes in the rally also have been faltering which indicates lack of participation and sustainability in the recent up move. The daily RSI has been taking shape of a rising wedge which also corroborates bearish in the counter. We recommend going short on Bank of Baroda Oct Futs in the range of Rs785-790 with stop loss of Rs 800 for target of Rs 755. (Duration 6 days).

Buy Bank of Baroda; target 1,017

For 1QFY2012, Bank of Baroda reported a decent set of results, with net profit growth of 20.2% yoy to Rs 10.33 billion, above our estimates of Rs 10.03 billion, primarily due to lower-than estimated provisioning expenses. Healthy traction in core fee income coupled with reduction in annualised slippage ratio for the quarter to 1.0% was the key highlight of the results.

For 1QFY2012, the bank`s overall business momentum moderated in-line with peers. However, business growth remained ahead of industry with advances growing by 25.2% yoy (up 1.6% qoq) and deposits increasing by 22.9% yoy (2.5% qoq). With the widening differential between FD and savings account interest rates, CASA deposit growth moderated further to 16.6% yoy. Global CASA ratio came off by 80bp qoq to 27.9%, while domestic CASA ratio declined by 45 bp qoq to 33.9%.

After adjusting for interest on income tax refund received in 4QFY2011, the bank`s reported domestic NIM declined by 30 bp qoq to 3.4% due to a sharp 78bp qoq rise in cost of funds as compared to a 58 bp rise in yield on advances. Core fee income increased by an impressive 36.3% yoy to Rs 2.75 billion in 1QFY2012. Asset quality of the bank was largely stable during the quarter, with annualised slippage ratio declining to 1.0% from 1.5% each in 4QFY2011 and 1QFY2011. Net NPAs, however, rose by a rather steep 29.5% yoy as the provision coverage ratio (including technical write-offs) came off by 250 bp qoq to 82.5%.

At the CMP, the stock is trading at 1.2x FY2013E ABV. We maintain `Buy` on the stock with a target price of Rs 1,017.

Buy Bank of Baroda; target Rs 1,170

Net interest income (NII) grew 23.6% in Q1FY12 (Rs.22.97 billion) on back of strong loan growth (25.2%) and almost stable global NIM (decline of only 3 bps). However, its net profit growth came slightly lower at 20.2% on back of muted non-interest income and higher investment depreciation (Rs.1.39 billion in Q1FY12 as against Rs.0.59 billion of write-back during Q1FY11).

Net NPA rose 29.5% QoQ; slippage came at 1.0% (annualized), lower than the last quarter (1.52% during Q4FY11) but higher than the average run rate of 0.65% during Q2FY11 & Q3FY11. However, both gross NPA (1.46%) as well as net NPA (0.44%) still remains at the comfortable level. Rs 4.55 billion worth of loans were restructured during Q1FY12 (6.8% growth QoQ) by taking its total cumulative restructured book to Rs.71.7 billion (3.1% of advances). The recent increase is slightly on the higher side.

We have slightly tweaked the earnings estimate for FY12E; we are also maintaining `BUY` rating on the stock but with the revised target price of Rs.1,170 (Rs.1,180 earlier) based on 2.0x its FY12E adjusted book value.

Buy Bank of Baroda; targt Rs 1,010

Bank of Baroda (BoB)`s Q1FY2012 results were in line of our estimates at the net profit level, increasing by 22% year on year (YoY) to Rs 10.33 billion. However, the net interest income (NII) growth was short of our estimates as it grew 23.6% YoY to Rs 22.97 billion due to a decline in domestic margins (3.39% compared to 3.70% in Q4FY2011). However, a decline in provisions by 34% quarter on quarter (QoQ) compensated for the slower growth in the NII. In line with the industry trend, asset quality showed stress as the bank reported slippages of Rs 5.85 billion while Rs 4.55 billion of loans were restructured during the quarter.

We have revised our estimates to factor moderation in domestic advances and pressure on margins and hence estimate a compounded annual growth rate (CAGR) in earnings of 16% over FY2011-13. We revise our target price to Rs 1,010 (1.4x FY2013 book value [BV]) and maintain `Buy` rating. BoB reported an advances growth of 25.2% YoY and 1.6% QoQ due to the pickup in overseas lending which grew at 27.7% YoY. In the domestic segment the small and medium enterprise (SME; 31% YoY) and the corporate sector (30% YoY) segments were the key drivers for advances growth. The net interest income grew 23.6% YoY to Rs 22.97 billion, lower than our estimates due to a decline in the margins. We expect advances to grow at 22% CAGR over FY2011-13.

In Q1FY2012, the domestic net interest margins declined by 31 bps sequentially (adjusting for one off in Q4FY2011) to 3.39% due to a rise in the cost of deposits and lag in re-pricing of advances. The domestic cost of deposits climbed up 78 bps QoQ to 6.41% while yields expanded by 58 bps QoQ to 11.2%. The current account-savings account (CASA) ratio remained steady at 33.9% compared 34.4% in Q4FY2011. The bank is likely to raise the lending rates in view of the recent hike in the key policy rates but margin pressure is likely to continue due to moderation in the CASA ratio and rising cost of deposits.

The core fee income reported a strong growth of 36% YoY mainly contributed by the overseas segment. However, the decline in the treasury income and lower recovery from written off accounts led to a marginal growth (4% YoY) in non interest income. The bank reported a treasury profit of Rs 740 million (compared to Rs 1,208 million in Q4FY2011) and recoveries of Rs 288 million (against Rs 859 million in Q4FY2011).

During the quarter the asset quality showed some stress in line with industry trends as gross and net non performing assets (NPAs) increased on a sequential basis. The bank reported slippages of Rs 5.85 billion (Rs 6.5 billion in Q4FY2011). While the bank restructured Rs 4.55 billion (outstanding restructured loans at Rs 71.66 billion), it was distributed across 2600 accounts. During Q1FY2012, the bank provided Rs112 for standard assets in line with the revised Income Recognition Asset Classification (IRAC) norms. The provision coverage including written off accounts was healthy at 83%.

The cost to income ratio was stable at 38%, largely in line with that of Q1FY2011. During Q1FY2012, the bank provided Rs 915 million towards second pension liabilities for serving employees. However, the provision expenses declined by 34% QoQ due to a sharp decline in the NPA provisions (Rs 1.32 billion vs Rs 4.24 million in Q4FY2011) and hence aided growth in profits.

Valuation:

In line with the industry trends, BoB (Q,N,C,F)* reported a contraction in margins and stress on the asset quality. With an increase in the interest rates and slower credit demand the credit growth is expected to moderate. Given BoB`s significant overseas presence, the moderation in domestic loan growth could be partly offset by a growth in the overseas book. We have reduced our FY2012 earnings estimates by 4.5% to factor in a moderation in domestic advances and pressure on margins. We revise our target price downwards to Rs 1,010 (1.4x FY2013 BV) and maintain our `Buy` rating.

Buy Bank of Baroda; target Rs 1,010

Bank of Baroda (BoB)`s Q1FY2012 results were in line of our estimates at the net profit level, increasing by 22% year on year (YoY) to Rs 10.33 billion. However, the net interest income (NII) growth was short of our estimates as it grew 23.6% YoY to Rs 22.97 billion due to a decline in domestic margins (3.39% compared to 3.70% in Q4FY2011). However, a decline in provisions by 34% quarter on quarter (QoQ) compensated for the slower growth in the NII. In line with the industry trend, asset quality showed stress as the bank reported slippages of Rs 5.85 billion while Rs 4.55 billion of loans were restructured during the quarter.

We have revised our estimates to factor moderation in domestic advances and pressure on margins and hence estimate a compounded annual growth rate (CAGR) in earnings of 16% over FY2011-13. We revise our target price to Rs 1,010 (1.4x FY2013 book value [BV]) and maintain `Buy` rating. BoB reported an advances growth of 25.2% YoY and 1.6% QoQ due to the pickup in overseas lending which grew at 27.7% YoY. In the domestic segment the small and medium enterprise (SME; 31% YoY) and the corporate sector (30% YoY) segments were the key drivers for advances growth. The net interest income grew 23.6% YoY to Rs 22.97 billion, lower than our estimates due to a decline in the margins. We expect advances to grow at 22% CAGR over FY2011-13.

In Q1FY2012, the domestic net interest margins declined by 31 bps sequentially (adjusting for one off in Q4FY2011) to 3.39% due to a rise in the cost of deposits and lag in re-pricing of advances. The domestic cost of deposits climbed up 78 bps QoQ to 6.41% while yields expanded by 58 bps QoQ to 11.2%. The current account-savings account (CASA) ratio remained steady at 33.9% compared 34.4% in Q4FY2011. The bank is likely to raise the lending rates in view of the recent hike in the key policy rates but margin pressure is likely to continue due to moderation in the CASA ratio and rising cost of deposits.

The core fee income reported a strong growth of 36% YoY mainly contributed by the overseas segment. However, the decline in the treasury income and lower recovery from written off accounts led to a marginal growth (4% YoY) in non interest income. The bank reported a treasury profit of Rs 740 million (compared to Rs 1,208 million in Q4FY2011) and recoveries of Rs 288 million (against Rs 859 million in Q4FY2011).

During the quarter the asset quality showed some stress in line with industry trends as gross and net non performing assets (NPAs) increased on a sequential basis. The bank reported slippages of Rs 5.85 billion (Rs 6.5 billion in Q4FY2011). While the bank restructured Rs 4.55 billion (outstanding restructured loans at Rs 71.66 billion), it was distributed across 2600 accounts. During Q1FY2012, the bank provided Rs112 for standard assets in line with the revised Income Recognition Asset Classification (IRAC) norms. The provision coverage including written off accounts was healthy at 83%.

The cost to income ratio was stable at 38%, largely in line with that of Q1FY2011. During Q1FY2012, the bank provided Rs 915 million towards second pension liabilities for serving employees. However, the provision expenses declined by 34% QoQ due to a sharp decline in the NPA provisions (Rs 1.32 billion vs Rs 4.24 million in Q4FY2011) and hence aided growth in profits.

Valuation:

In line with the industry trends, BoB reported a contraction in margins and stress on the asset quality. With an increase in the interest rates and slower credit demand the credit growth is expected to moderate. Given BoB`s significant overseas presence, the moderation in domestic loan growth could be partly offset by a growth in the overseas book. We have reduced our FY2012 earnings estimates by 4.5% to factor in a moderation in domestic advances and pressure on margins. We revise our target price downwards to Rs 1,010 (1.4x FY2013 BV) and maintain our `Buy` rating.

Buy Bank of Baroda; target Rs 879

Bank of Baroda (BOB) has been consolidation in last five trading session after hitting an interim peak of Rs 885 with volumes tick supporting the white candles. There has been cluster of support seen in the range of Rs 845-848 from where stock price has seen good bounce back. Despite volatile markets prices have been holding 20DMA which exhibits strength in the counter. On the weekly chart the trend remains on the sideways with no specific indication of any breakdown. We advise buying stock in the range of Rs 843-845 with stop loss of Rs 828 for target of Rs 879

Neutral Bank of Baroda, target Rs 1065

Bank of Baroda (BOB) restructured domestic loans worth INR16b and overseas loans worth INR13.98b in FY11; total outstanding restructured loan book at INR96.8b. Asset quality continued to improve, with slippage ratio declining to 1.08%. Higher proportion of liabilities maturing within a year a risk to NIM, but lending rate hike may provide some cushion.

Restructured loans increased from INR69.1b (3.95% of loans) in FY10 to INR96.8b (4.24% of the loans). Domestic restructured loans increased from INR51.1b to INR67.1b while overseas restructured loans increased from INR17.97b to INR29.74b. On an incremental basis, the bank restructured domestic loans worth INR16b and overseas loans worth INR13.98b (which also includes Dubai World exposure).

Asset quality continued to improve, with slippage ratio declining to 1.08%. Slippage ratio is the lowest in seven years except for FY09 (0.94%). However, the proportion of upgradations and recoveries as a percentage of opening GNPA declined from 33% in FY10 to 27%. Write-offs remained largely stable at ~INR5b. On the back of strong profitability, BOB made floating provisions of INR3b. In 1HFY12, 38% of deposits and 32% of loans are due to mature while in 2HFY12, 26% of deposits and 13% of loans are due to mature.

In a rising interest rate scenario, a larger proportion of liability re-pricing within a year may impact margins. However, the bank has increased lending rates by 100bp from January 2011, which should restrict margin decline.

BOB's performance on key operating parameters like (a) margins, (b) asset quality, (c) CASA and business growth, and (d) return ratio was among the best in the industry during FY11. We model ~15bp margin compression (~10bp adjusted for interest on IT refund) in FY12. Opex is likely to remain flat on a higher base. We have assumed tax rate of 32-33% over FY12-13 v/s 25% in FY11. We expect RoA of ~1.2% over FY12- 13 and earnings CAGR of ~12%. We estimate EPS at INR117 for FY12 and INR138 for FY13, and BV at INR602 for FY12 and INR713 for FY13. The stock trades at 1.4x FY12E BV and 1.2x FY13E BV. We maintain Neutral, with a target price of INR1,065 (1.5x FY13E BV)

 

" Sell Bank of Baroda; target Rs 837"

Bank of Baroda after falling from the level of 1007 took support near 800 levels and has been witnessing an upside recovery subsequently. From an Elliott wave perspective said recovery has unfolded into a-b-c flat corrective pattern where first two legs have been completed and last leg i.e. the c-wave is currently underway.

Prices are currently positioned just below the resistance of 882-890 (formed by 55-day EMA and higher end of falling channel) while the current up move has subdivided into five wave five wave pattern. Hence it is possible that the stock could see a turnaround and resume its prevailing weak tone in the coming trading sessions. Comfortable close below yesterday’s low of 869 could signal the resumption of such weakness which finds support near 837 and then 820 levels subsequently. Sell only below 869, with a closing stop of 885 for possible targets of 837 and then 820.

Buy Bank of Baroda; target of Rs 1,027

The bank delivered a healthy 50% YoY and 14% QoQ growth in NII. This was primarily led by one time interest on income tax refund to the tune of Rs. 2.5 billion. NII expanded 35% YoY and 3% QoQ excluding the one time income.

Global NIMs as a corollary to NII increase, expanded to 3.5% in Q4FY11 from 3.0% in Q4FY10. Domestic reported NIM stood at 4.2% including the onetime income and 3.7% excluding the interest on income tax refund reporting a marginal 12 bps decline sequentially.

Gross NPAs increased by 31% YoY and 14% QoQ to 1.36% in Q4FY11 from 1.32% reported in Q3FY11. Net NPAs stood at 0.35% in Q4FY11 from 0.36% in Q3FY11.

The bank seems to be comfortable on the NPA front as they had resorted to system driven NPA identification quite some time back, so the bank does not expect any major surprises on that front.

The provision coverage ratio stood at 74.9% and 85.0% including technical write-offs. The bank has provided Rs. 5.5 billion as onetime pension liability towards retired employees and Rs 3.7 billion towards serving employees.

Total liability towards second pension plan stands at Rs 18 billion, which is to be amortized over a period of five years.

The bank has also provided Rs. 1.8 billion as transitional liability, which is to be provided till 2012 as the bank is in the fourth year towards providing it.

At CMP the stock is trading at a P/ABV of 1.4x and 1.1x for FY12E and FY13E respectively. We have valued the bank at 1.4x on FY13E ABV of Rs. 734, yielding a potential upside of 23% (15 months) and recommend `Buy` rating for a target of Rs 1,027.

Buy Bank of Baroda; target Rs 1,252

BoB`s core operating performance has been largely in line with expectations on the margin and growth front. The uncertainty over pension liability has come to an end, with bank having adequately provided for pension and other liabilities. However, the steep sequential increase in slippages took the markets by surprise. However, the slippages remain in line with the management guidance. Going forward, the management expects slippages to remain likely at 1.2-1.25% levels (on a conservative basis) and does not expect any negative surprise from transition to system-based NPL recognition method.

On the back of its consistent superior performance, BoB currently trades at a premium of 8-10% to its peers (on FY13 basis). We believe, asset quality issues are likely to act as an overhang on the stock in the near term resulting into erosion in its valuation premium, till the time market takes further cues post the results of other peer banks. We are revising our earnings estimates for FY12E and FY13E upwards by 6.9% and 8.8% respectively to factor in the change in the pension provisions as declared by the management vis-Ã -vis our estimates which were on the higher side earlier. We maintain our `Buy` rating on the stock, with one-year forward price target of Rs 1,252.

Buy Bank of Baroda; target of Rs 1,252

BoB`s core operating performance has been largely in line with expectations on the margin and growth front. The uncertainty over pension liability has come to an end, with bank having adequately provided for pension and other liabilities. However, the steep sequential increase in slippages took the markets by surprise. However, the slippages remain in line with the management guidance. Going forward, the management expects slippages to remain likely at 1.2-1.25% levels (on a conservative basis) and does not expect any negative surprise from transition to system-based NPL recognition method.

On the back of its consistent superior performance, BoB currently trades at a premium of 8-10% to its peers (on FY13 basis). We believe, asset quality issues are likely to act as an overhang on the stock in the near term resulting into erosion in its valuation premium, till the time market takes further cues post the results of other peer banks. We are revising our earnings estimates for FY12E and FY13E upwards by 6.9% and 8.8% respectively to factor in the change in the pension provisions as declared by the management vis-Ã -vis our estimates which were on the higher side earlier. We maintain our `Buy` rating on the stock, with one-year forward price target of Rs 1,252.

Buy Bank of Baroda; target of Rs 1,180

Net interest income (NII) grew whopping 49.8% in Q4FY11 on back of strong loan growth and 48 bps (YoY) improvements in global NIM. It was further aided by Rs 2.5 billion worth of interest on IT refund (exceptional item) during Q4FY11.

Its net profit growth was also strong at 56.9% on back of strong core earnings and lower tax rate during Q4FY11 despite muted non-interest income and spike in opex on back of pending pension liability provisions.

Asset quality deteriorated slightly - incremental slippage during Q4FY11 came at 1.52% (Rs 6.66 billion) as against the average run rate of 0.94% during last 3 quarters. However, both gross NPA (1.36%) as well as net NPA (0.35%) are at comfortable levels in percentage terms. Its cumulative restructured book stands at Rs 67.1 billion (2.9% of advances), which remains lower than the industry average.

We are slightly tweaking our earnings estimate for FY12E and maintaining `Buy` rating on the stock with the target price of Rs 1,180 (Rs 1,230 earlier) based on 2.0x its FY12E adjusted book value.

Buy Bank of Baroda; target Rs 1,160

The NII grew by 49.8%yoy to Rs 26.1 billion slightly ahead of our expectation led by one time income of Rs 2.5 billion on account of tax refund during the quarter. Adjusted for which the NII growth would have been lower at 35.3%.

The growth in NII was driven by 30.6%yoy (10.3%qoq) growth in advances and 19bps qoq expansion in NIM`s to 3.0%. However adjusted for tax refund the NIM would have contracted by 11bps qoq to 2.8%

BOB has increased its base rate/BPLR by about 50bps in the last quarter which we believe will help maintain the margins at current level. We are already building in NIM contraction of 20bps in our numbers.

BOB`s advances for the quarter have grown by 10.3% qoq driven by strong growth in Foreign, SME, Retail and corporate advances.

The domestic CASA mix declined by just about 72bps qoq to 34.4% despite a strong 10.4% qoq growth in advances.

BOB`s tier I capital adequacy ratio increased to 10% from 7.7% in preceding quarter as the government infused Rs 24.6 billion during the quarter.

Valuations and view:

The stock is currently quoting at 1.7x FY12E ABV and 1.4x FY13E ABV with attractive average RoEs of 21%. We believe that the valuations are attractive looking at (1) strong returns profile and (2) better NPAs profile than peers. We have built in NIM contraction of 20bps for FY12E. However, we believe that lower requirement for provisions and cost improvements will help BOB to sustain its RoAs at current levels. We maintain our `Buy` rating on the stock with price target of Rs 1,160.

Buy Bank of Baroda; target of Rs 1,230

BoB to get Rs 24.6 billion (27.28 million shares @Rs 902) from GOI; concern of capital constraints recedes with this capital infusion and would enhance GOI stake to 57.0% (earlier 53.8%) post this preferential allotment.

Equity dilution at 7.5%; similarly RoE is likely to compress by 110 bps to 21.9% during FY12E. However, it is likely to enhance tier-I capital by 125 bps, addressing the concern of capital constraints. The enhanced GOI stake (57% post allotment) provides leeway for further capital issuance from the capital market in the future without depending on the GOI.

We are slightly tweaking the numbers for FY11E as well as FY12E and reiterate Buy on BOB with Target Price of Rs 1,230 based on 2.0x its FY12E ABV. The stock has been a re-rating candidate with sustained high quality of earnings over past few years. Hence, BoB remains one of our preferred picks in the banking sector space.

Sell Bank of Baroda; target of Rs 830

Bank of Baroda has pulled back slightly after hitting the resistance level of Rs 920 and has been trading mixed over the 21-day EMA in the last few sessions. The 14-day RSI is turning down towards the equilibrium while the Stochastic (14, 3, 3) has made a bearish crossover and is easing out of the overbought territory. Hence a comfortable break below the support at Rs 872 could signal the conclusion of prevailing mixed tone and invite weakness towards the support at Rs 847 and then the 200-day EMA near Rs 825 subsequently.

On the higher side, stiff resistance is likely to be seen near Rs 900/906. Only an early close above it could turn the sentiments positive negating the downside potential. Sell Bank of Baroda below Rs 872, with a target of Rs 830 and stop loss of Rs 900.

Buy Bank of Baroda; target of Rs 1,241

Net interest income (NII) grew whopping 43.2% in Q3FY11 (11% ahead of our expectations) on back of strong loan growth and 25 bps improvement in global NIM. Its net profit growth was also strong at 28.4% on back of strong core earnings, marginal growth in opex despite flat non interest income.

Another positive facet has been its asset quality. Its incremental slippage during Q3FY11 came at only 0.63% as against the average run rate of 1.14% during last 6 quarters. In percentage terms, both gross NPA (1.32%) as well as net NPA (0.36%) are at comfortable level. Its cumulative restructured book stands at Rs 60.5 billion (2.9% of advances), which remains lower than the industry average.

We are slightly revising our earning estimate upward for FY11E & FY12E. We are also maintaining `Buy` rating on the stock with the target price of Rs 1,241 (Rs 1,226 earlier) based on 2.1x its FY12E adjusted book value. The stock has been a re-rating candidate with the improvement in its return profile (RoA: 1.3%, RoE: 23% during FY12E). Hence, BoB (Q,N,C,F)* remains one of our preferred picks in the banking sector space.

Buy Bank of Baroda; target of Rs 1202

Bank of Baroda (BoB) reported PAT of Rs 10.7 billion, up 28.4% YoY and 4.9% QoQ, much ahead of our as well as street estimates. Net Interest Income (NII) grew strongly by 43.2% YoY and 12.5% QoQ, driven by robust 32.7% YoY and 7.4% QoQ growth in advances, coupled with 18bps QoQ improvement in global NIM to 3.20%. Domestic NIM improved by 20bps QoQ to 3.82% as the domestic cost of deposits remained stable QoQ. Overall non-interest income declined marginally by 0.8% QoQ on the back of a steep 23.0% QoQ decline in the trading income, while the core fee income remained sluggish as it declined by 1.5% QoQ.

Business growth was much above industry, with global advances and deposits growing by 29.6% and 30.0% YoY, respectively. CD ratio for the quarter stood at 73.6%, while the incremental CD ratio (QoQ) increased to 120.2% v/s 49.1% in Q2FY11. However, the bank holds SLR to the tune of 26.78%, which makes bank’s balance sheet fairly liquid. Domestic CASA ratio declined to 35.1% v/s 35.9% in Q2FY11 as the domestic CASA deposits failed to grow in tandem with the overall deposits. Provision increased 63.9% QoQ on the back of 45.1% QoQ increase in loan loss provisions and an investment depreciation provision to the tune of Rs 0.5 billion during the quarter. The management has guided for total liability towards second option of pension of Rs 20.6 billion and plans to amortize it over a period of five years. The bank has already provided for Rs 2.0 billion in H1FY11 and has provided for Rs 0.7 billion and Rs 1.08 billion towards gratuity and pension, respectively, in Q3FY11.

Asset quality remained stable, as GNPAs increased marginally by 1.9% QoQ. Incremental slippages, too, remained stable QoQ at Rs 2.75 billion (0.7% annualized) v/s Rs 2.8 billion (0.8% annualized) in Q2FY11. Provision coverage, including technical write-offs, stood comfortable at 85.5%. Assets worth Rs6.1bn were restructured in Q3FY11, taking the cumulative restructured book at Rs 60.5 billion, forming 2.9% of total loan book.

BoB has consistently delivered superior quality of earnings, compared to peers, by combining growth along with profitability and stable asset quality. The only uncertainty over the stock was related to its pension liability, which the management has clarified now and we believe that strong momentum in earnings growth should help the bank in absorbing this additional cost. BoB is currently trading at its historically high valuations. However, the re-rating could be justified by the sustained improvement in the quality of earnings, continuity of top management and marked improvement in asset quality. We have revised our earnings estimates upwards by 6.5% and 3.4% for FY11 and FY12, respectively, to factor in better-than-expected performance. We maintain our ‘BUY’ rating on the stock, with revised one-year forward price target of Rs 1,202.

Buy Bank of Baroda; target of Rs 1300

Bank of Baroda (BOB) reported extremely strong results with 61% yoy growth in net profits to Rs 10.2 billion as compared with our estimate of Rs 8.2 billion. Stronger than expected net interest margin and non dependence on wholesale business resulted in the bank's commendable performance. We are revising our FY2011 EPS by 10% to Rs 112 and FY2012 EPS by 16% to Rs 145 and increase our price target to 1,300 (2.2x FY2012 BV) from our earlier target of Rs 810 to factor the re-rating that the bank is undergoing on account of superior performance.

Bank of Baroda's NIM increased by 11 basis points qoq to 3% and from 2.63% in 2QFY2010. The increase was primarily on account of the 38bp qoq increase in yield on domestic credit to 10.17% as the bank increased its prime lending rate (PLR) by 50bp in August 2010 and its base rate by 50bp in September 2010. The bank unlike some of the other banks is confident of not only maintaining its NIM but also trying to increase it for the remaining part of the year. The bank's non reliance on wholesale business also resulted in moderate cost of funding. The bank was able to maintain its treasury profits as it replaced the earlier periods profits from debt securities by booking gains on its equity investments and its fee income also posted a healthy increase. Despite a 3% growth qoy in non-performing assets (NPAs) and restructured standard loans, the bank has a strong coverage ratio of 86% as per the regulator's norms. Even its restructured standard loans are lower as compared with other large government banks.

We are revising our FY2011 EPS by 10% to Rs 112 and FY2012 EPS by 16% to Rs 145 and increase our price target to Rs 1300 (2.2x FY2012 BV) from our earlier target of Rs 810 to factor the re-rating that the bank is undergoing on account of superior performance. We change our recommendation from under-perform to Buy. The steep revision in our price target is on account of the higher than consensus performance that BOB has demonstrated while maintaining its asset quality which is commendable. We change our recommendation from under-perform to Buy.

 

Buy Bank of Baroda; tgt of Rs 1208

Bank of Baroda’s (BoB) 2QFY11 profit rose 60.7% yoy, driven by impressive net interest income (NII) and better productivity. Due to better NIM assumptions, we raise FY11e/12e EPS 10%/10.7%. On better RoEs, we value the stock at 1.9x FY12e BV (1.5x FY11e BV earlier) and raise our target price to Rs 1208 from Rs 897. The high CASA share, strong fee-income-growth potential and high NPA coverage make it our preferred pick among PSU banks. Maintain Buy.

Domestic CASA grew 27.3% yoy, its share in deposits remaining stable at ~36%, aiding NIM expansion of 39bp yoy to 3.6%. We expect NII to grow 36.8% in FY11 and 33.6% in FY12. Fee growth (29.3% yoy) was in line with credit growth (29.6% yoy). We expect fee income growth to be helped by a recovery in loan disbursements.

Gross NPAs rose 2.3% qoq, but the NPA coverage at 73.1%, was one of the highest in the sector; including technical write-offs, it was 85.6%. The bank has contained slippages below its target of 1.25% for the past six quarters. Capital adequacy was sufficient at 14.3%, with tier-1 capital at 9.2%. At our target price of Rs 1208, BoB would trade at a PABV of 2x FY12e and 1.6x FY13e. Risks: Slower accretion in low-cost deposits, leading to NIMs being lower than estimated; higher credit costs due to lower-than-expected NPA recoveries.

 

Buy Bank of Baroda; target of Rs 1138

Bank of Baroda (BoB) posted PAT growth of 61% YoY in 2QFY11 (18% higher than our estimate) on back of strong NII growth (7% higher than our estimate) and lower provisions (30% lower than our estimate).

NII grew 47% YoY (7% higher than our estimate), led by sharp improvement in margins and strong loan growth. Domestic NIM improved 73bp YoY (19bp QoQ) to 3.62% and global NIM improved 39bp YoY (12bp QoQ) to 3.02%. Sequential increase in margins is impressive, considering the rise in cost of deposits and fall in CD ratio from 73% to 71.5% during the quarter. Room to expand CD ratio will provide buffer to maintain margins in a scenario of rising cost of liabilities. Loans grew 4% QoQ and 30% YoY to Rs 1.93t and deposits grew 6% QoQ and 30% YoY to Rs 2.7t. Domestic CASA deposits grew at an impressive rate of 27% YoY and 7% QoQ to Rs 739 billion. Domestic CASA ratio improved from 35.2% a quarter ago to 35.9%. Fee income grew 24% YoY in 2QFY11 and 14% YoY in 1HFY11. Slippages during 2QFY11 were Rs 3 billion (0.7% annualized slippage ratio). Slippages for 1HFY11 were Rs 9.7billion (1.1% annualized slippage ratio). PCR including technical write-offs is 86% (v/s 89% a quarter ago).

Comfort on core earnings growth and asset quality remains one of the highest in the sector. Performance on core operating parameters like (1) margins, (2) fee income growth, (3) CASA growth, and (4) asset quality is commendable. On the back of better than expected core operating profitability and lower than expected slippages, we have upgraded our earnings estimates by 9% each for FY11/12. The stock trades at 1.8x FY12E BV and 7.9x FY12E EPS. Maintain Buy with revised target price of Rs 1138 (2x FY12E BV of Rs 569).

 

Accumulate Bank of Baroda; tgt of Rs 824

Bank of Baroda (BoB) is the third largest public sector bank. Mr. M.D. Mallya is Chairman and Managing Director of BoB. At present BoB has 38063 staff strength, 3211 total branches and 1315 ATMs. Out of the total branches, 89 are foreign branches and remaining are domestic branches. BoB is known as the international bank of India as it has one of the largest branch networks in foreign countries. It is well known for conservative approach and transparent and qualitative performance. At present Bank of Baroda is trading at 1.9x Adj. BV of FY10. Our target price of Rs 824 is 1.9x and 1.6x to Adj. Book Value per share of FY11& FY12 respectively. We hereby initiate coverage on Bank of Baroda and recommend accumulate rating with a target price of Rs 824 (15% upside) in 12 months.

BoB a outperformer; target of Rs 650

Given the backdrop of a rise in bond yields and sluggish credit growth in the industry, Bank of Baroda, (BOB) reported strong 3QFY2010 profits supported by lower provision for taxes and a healthy rise in the net interest income. While net profits was 30% higher than our estimates, operating profit was only 10% higher than our estimates. We are revising our FY2010 profits upwards by 4% to Rs29.6bn and increasing FY2011 profits by 2% to Rs35.8bn. As the Dubai exposure concerns have also considerably lessened for BOB we are re-rating the price from Rs 450 to Rs 650 (1.4x FY2011 BV) and change our recommendation from Sell to Out Performer.

Sell Bank of Baroda, target Rs 450

We expect Bank Of Baroda to report 9% (YoY) decline in net profits to Rs 6,435 million primarily on account of lower treasury profits. The bank had booked Rs 4.2 billion in 3QFY2009 as treasury gains and we expect the bank to report only Rs 1.3 billion in this segment in 3QFY2010. We are retaining our sell recommendation with target price of Rs 450 as we would seek further clarity on BOB's Dubai exposure and the likely provisions that the bank may have to undertake in that region.

Hold Bank of Baroda, target of Rs 524

We have valued Bank of Baroda by using the three-stage Discounted Equity Cash Flow model. Our fair value estimate of the standalone Bank is Rs. 498, assuming a 16.18% cost of equity and a 9.75% terminal growth rate. We have valued the Banks 25% stake in the UTI AMC at 5% of its FY10E AUM, leading to a value of Rs. 26 per share. This gives a total fair value of Rs. 524 per share, which shows an upside of 10.6% from the current level. Currently, the stock trades at a P/B of 1.3x, which is high, considering the expected NPLs from restructured assets. Therefore, we downgrade the stock form 'Buy' to 'Hold', with price target of Rs 524.

Buy Bank Of Baroda

We expect BoB to post EPS of Rs61 in FY10 and Rs76 in FY11. BV will be Rs364 in FY10E and Rs422 in FY11E. RoA will be 0.9-1% and RoE at 18-19% over the next two years. The stock trades at 1x FY11E BV and 5.5x FY11E EPS. Buy.

Buy Bank Of Baroda

The management is confident of growing assets at a pace higher than industry. The bank's FY10 loan growth is seen at 22%. We expect BoB to post EPS of Rs61 in FY10 and Rs76 in FY11. BV will be Rs364 in FY10E and Rs422 in FY11E. RoA will be 0.9-1% and RoE at 18-19% over the next two years. The stock trades at 1x FY11E BV and 5.5x FY11E EPS.

Sell Bank Of Baroda, target of Rs 330

We expect BOB to report strong Q1FY2010 net earnings of Rs6.4bn on the back of significant treasury profits of Rs 3,000 million. Despite the strong earnings we maintain our 'Sell' recommendation as we believe that asset quality concerns are not being priced in bank stocks. Target price Rs 330.

Buy Bank of Baroda

We expect Bank Of Baroda to report EPS of Rs 61 in FY10 and Rs 69 in FY11, an FY09-11 CAGR of 7%. Book Value would be Rs 365 in FY10 and Rs 418 in FY11. The stock trades at 1.1x FY10 BV and 6.7x FY10 EPS. We like BoB for its inherent strengths of large branch network, technological advancements, strong international business, extensive client base, relatively low risk loan book and clean asset quality. BoB is our preferred bet among state-owned banks, Buy.

Sell Bank of Baroda, target of Rs 330

We are revising our recommendation to sell from market perform for Bank of Baroda as the share price increased by 21% yesterday from Rs 341 on 15th May on the euphoria of the United Progressive Alliance's decisive victory in the election polls on 16th May 2009. While the victory will enhance the reform process in the financial sector we believe that the optimism does not justify the current share price. Since April 2006, BOB has traded at between 0.9x - 1.3x P/ABV, apart from end 2007 and early 2008 when BOB traded at more than 1.5x P/ABV. The current surge in BOB's share price has resulted in the bank being traded from a low of 0.7x P/ABV to its current 1.25x. While the bank has performed well we believe that the current optimism is pushing the share price to unsustainable levels.

Buy Bank Of Baroda, target of Rs 360

For Q4FY2009, Bank of Baroda (BoB) has reported a bottom line of Rs 752.7 crore, a multi-fold increase from the net profit of Rs 276.4 crore in Q4FY2008. This was mainly driven by a strong growth in net interest income (NII), fee-based income and robust treasury gains. This is well ahead of our as well as streets estimates. We are revising our FY2010 earnings estimate upwards by 18.9% to factor in a higher growth in credit and fee-based income in the current fiscal. We are also introducing our FY2011 estimates in this note. We expect BoBs earnings to grow by 15.7% yoy in FY2011 and at a CAGR of 11% during FY2009-11. We maintain our 'Buy' recommendation with a revised price target of Rs 360.

Add Bank Of Baroda, target of Rs 327

Bank of Baroda (BoB) reported 4QFY09 net profit of Rs 7,527 million, up 172% YoY, significantly ahead of our estimates. Profit growth was driven by all-round growth in net interest income, fees and treasury income. During the year, BoB restructured 1.8% of its loans and applications for a further 1.2% were under consideration. This surge in restructuring cases is not unexpected, but the lack of commensurate provisioning in FY09 means provision charges will have to rise in future. We expect loan growth and fee income to moderate and treasury income to decline in FY10. The stock trades at 0.9x FY10ii book. Maintain ADD, target price of Rs 327,

Buy Bank Of Baroda, target of Rs 394

The banks low sustainable RoE has been the problem in the past. We feel that the bank can definitely improve its core RoE from 15% to 17-18% by FY10E with good quality assets and should lead to a re-rating of the stock. At the CMP, the stock is quoting at 5x FY10E EPS, 0.9x FY10E BV and 0.9x FY10E ABV; valuations remain extremely attractive. We maintain our BUY rating on the stock, with a revised price target of Rs 394 (earlier Rs295), significant upward revision (33%) is mainly on account of higher P/BV multiple that the bank should command once its RoE stabilises at 17-18%.

Buy Bank Of Baroda, target of Rs 295

We are revising our FY2009 restructured standard assets from Rs 3.8 billion to Rs 30 billion as we believe that BOB's corporate loan portfolio has deteriorated and many of the bank's corporate customers have requested for restructuring their standard loans. As a result our ABV for FY2009 has been revised downwards to Rs 257 from our earlier estimate of Rs 302 and our FY2010 ABV has been revised to Rs 321 from Rs 368. We are downgrading our price target to Rs 295 from Rs 335 to factor the deteriorating economic environment. We continue to maintain our Buy recommendation.

Buy BOB, target of Rs 336

Bank of Baroda (BOB) reported strong PAT growth of 41.4% YoY to Rs 7.1 billion on the back of strong operating performance. PAT was up on the back of NII growth of 46.6% YoY as well as very good treasury performance. Bank of Baroda has improved its NII performance where it has been laggard in last few quarters. It was done by reducing reliance on bulk deposits as well as expanding yield on advances. We maintain our BUY recommendation and price target of Rs 336.

Buy Bank Of Baroda, target of Rs 336

Bank of Baroda (BOB) reported strong PAT growth of 41.4% YoY to Rs 7.1 billion on the back of strong operating performance. We maintain our BUY recommendation and price target of Rs 336. At the CMP of Rs 247, the bank trades at 5.5x and 0.9x its FY10E EPS and ABV respectively.

Sell BOB at Rs 238.2

Sharekhan has recommended to sell Bank Of Baroda (BOB) at Rs 238.2 with a stoploss of Rs 242.6 and targets of Rs 232 and Rs 226 in its January 23, 2009 .