Bank of Baroda 3QFY11 – Stable NIM, high NPA coverage; Buy : Anand Rathi

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Bank of Baroda
3QFY11 – Stable NIM, high NPA coverage; Buy
Bank of Baroda’s profit rose 28.4% yoy, driven by healthy net
interest income (NII) and better productivity. The bank’s high
CASA share, strong fee income growth potential and high NPA
coverage make it our preferred pick among PSU banks. Buy.

 Margins led by CASA growth. Yoy growth in credit (up 32.7%)
and deposits (30.9%) was faster than the industry’s. Domestic
CASA grew 23.2% yoy, its share in deposits remaining stable at
~35%, aiding NIM expansion of 20bps qoq to 3.8%. Unlike most
of its peers, BoB’s credit-to-deposits in 3QFY11 was largely stable
yoy, at 73.6%.
 Fees modest, but productivity improves. Fees grew 1.7% yoy,
slower than credit growth, with treasury gains falling 39.1% yoy.
Ahead, we expect fee-income growth to be helped by recovery in
loan disbursements. Productivity improved, with core cost-income
falling 820bps yoy (198bps qoq) to 38.7%. Cost-assets at 1.5%
(annualized) is one of the best among large-cap peers.
 Asset quality fine, NPA coverage high. Gross NPAs rose 1.9%
qoq, but the NPA coverage is 85.5%, one of the highest in the
sector. In 3QFY11, slippages were restricted to 0.6% of loans
(annualized). Restructured assets are `56bn (2.9% of loans), of
which 9.3% have turned NPAs.
 Valuation. At our target price of `1,208, BoB would trade at 2x
FY12e and 1.6x FY13e ABV. Risks: Slower accretion in low-cost
deposits, higher credit costs.