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Bank of Baroda
F2Q11: Continued Delivery
What's Changed
Price Target Rs1,200.00 to Rs1,300.00
BOB reported profits of Rs10.2 bn (up 19% QoQ and
61% YoY) – ahead of our estimate of Rs7.8 bn. The
beat was driven by better NII and lower provisions.
The key highlights from the results:
1) Global margins expanded by 9 bps QoQ to 3.02%.
Domestic margins expanded by 19 bps QoQ to 3.62%.
2) Volume growth was robust -- loan book expanded
by 4% QoQ / 22% YoY. Deposits grew by 6% QoQ /
30% YoY. NII grew by 10% QoQ and 47% YoY.
3) Operating expenses were up 12% QoQ and 12%
YoY. We note that BOB hasn't yet started making
provisions for second pension option related liability.
Even if we adjust numbers for pro forma pension
provisions, profits would have been up +43% YoY
(vs. reported +61% YoY) and ROA would have
been at 1.2% annualized (vs. reported ROA of
1.34%).
4) Asset quality trends were positive. Loan loss
provisions dropped to 0.3% of loans (annualized)
from 0.6% in QE Jun-10, driven by lower slippages.
NPL coverage remains strong at 86%.
5) Fee income growth picked up to 23% YoY. Net
capital gains contribution to earnings was lower at
9% of PBT.
Maintain OW, raised our PT to reflect estimate
revisions, probability weightings: BOB continues to
deliver on key metrics of revenue growth and asset
quality. Core PPOP grew by 24% QoQ and 77% YoY in
QE Sept-10. Asset quality trends remain significantly
better than peers. Although the stock has done well, we
see scope for further upside in light of the above.
Valuations remain attractive at 9.0x F2012e earnings
and 4.5x F2012e PPP.
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