bank of baroda - 2QFY11 results – exceptionally strong, ADD says IIFL,

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2QFY11 results – exceptionally strong
Bank of Baroda’s (BOB) 2QFY11 net profit increased by 61% to Rs10.2 bn, well ahead of market
consensus and our estimates. The performance was exceptionally strong across many parameters,
including loan growth, NIM, cost and loan loss provisions. The strong show was helped by the absence
of any provision for additional pension liabilities that the bank is likely to incur. Still, the growth would
have beat consensus and our estimates by a significant margin. Going forward, the bank would likely
sustain the strong momentum seen in 2HFY11 as well, even after considering the impact of additional
pension liabilities. We raise our earnings forecast and target price. We retain ADD.
2QFY11 results – exceptionally strong: BOB reported an exceptionally strong performance in 2QFY11.
Net profit growth was ahead of market consensus and our estimate by 21% and 29%, respectively. Strong
growth was seen across many parameters. Loan growth was significantly ahead, NIM rose sequentially and
loan loss provisions (LLP) declined sharply. The strong show was helped by the absence of any provision for
additional pension liability. Even after this, the results would have beat expectation.
Strong momentum likely to sustain in 2HFY11: We expect the strong earnings momentum to sustain in
2HY11, even after moderating loan growth and considering the additional burden from pension liabilities.
NIM would likely remain strong; LLP would likely remain low. We upgrade our earnings forecast by 9.7-
12.1% over FY11-13ii.
We retain ADD; raise target price to Rs1,170: BOB has delivered consistent growth and returns over the
last five years by compounding its earnings by 36% during FY05-10 and improving ROA by 40bps during the
same period. We believe the improvements seen across key metrics, such as growth and profitability would
sustain momentum, helped by favourable tailwinds. Strong profitability metrics suggest that the bank would
likely re-rate further from here.